Recommendations of the director of insurance concerning the consolidated regulatory oversight of managed health care organizations

              Jane Dee Hull
Governor
Charles R. Cohen
Director
STATE OF ARIZONA
DEPARTMENT OF INSURANCE
JAME DEE HULL 2910 NORTH 44th STREET, SUITE 210 CHARLES R. COHEN
Governor PHOENIX, ARIZONA 85018-7256 Director of Insurance
December 28, 1999
Mr. Stuart Goodman
Executive Assistant
Office of the Governor
1700 West Washington
Phoenix, AZ 85007
Re: Recommendations Concerning Consolidated Regulatory Oversight of
Managed Health Care Organizations
Dear Stuart:
As you will recall, after the failure of SB1165 in the 1999 legislative session, you
instructed me to form an advisory group of representatives of impacted constituencies
and to formulate recommendations based on discussions with that group for the
implementation of a program for regulatory oversight of managed health care
organizations that consolidates the functional responsibility and activity within the
Department of Insurance. That process has been completed, and my report is
enclosed.
I would like to commend the members of my Advisory Group and my staff for the
dedication with which they addressed this project. I make my recommendations with
confidence as a result of their assistance.
I look forward to discussing these recommendations with you and other
interested persons as the dialogue continues on these issues of vital importance to our
state. Thank you for the opportunity to provide this input.
Sincerely,
*
Charles R. Cohen
Director of Insurance
Enclosure
Cc: Vista Brown
RECOMMENDATIONS OF THE DIRECTOR OF INSURANCE
CONCERNING THE CONSOLIDATED REGULATORY OVERSIGHT OF
MANAGED HEALTH CARE ORGANIZATIONS
CONTENTS
SECTION PAGE
I. BACKGROUND ................................................................................... 1
11. PROPOSED SENATE BILL 1165 ...................................................... 2
111. ADVISORY GROUP ON CONSOLIDATED REGULATORY
OVERSIGHT OF MANAGED HEALTH CARE ENTITIES ......... 3
IV. WORK OF THE ADVISORY GROUP. ............................................. 4
V. OVERVIEW AND SCOPE OF CONSOLIDATED REGULATORY
STRUCTURE ........................................................................................ 5
VI. TIMELINE ............................................................................................ 9
MI. SOURCES OF FUNDING ................................................................. 10
VIII. ESTIMATED GENERAL FUND RESOURCE
REQUIREMENTS .......................................................................... 11
I. BACKGROUND
Like most states, Arizona enacted its regulatory scheme governing "health care services
organizations" (HCSOs) (commonly referred to as HMOs) in the early 1970s. See A.R.S. 8 20-
105 1, et sea.' At that time, there was a low degree of HCSO penetration into the health
insurance marketplace. Most HCSOs operated on the "staff model," meaning they employed a
health care provider staff, operating within an HCSO-owned facility, to render services due
under their health care plans. Compared to today, it was a simple system.
An HCSO is a hybrid entity that both finances the cost of health care, like an insurance company,
and provides and arranges for health care delivery, like a health care provider. Consequently, the
original regulatory scheme, still in effect, bifurcates regulatory responsibility between the
Department of Insurance (DOI) and the Department of Health Services (DHS). DO1 is the lead,
or enforcement, agency. DO1 is the licensing authority, oversees financial condition, certain
aspects of market conduct, policy forms and advertising, and disciplinary matters. DHS oversees
the health services content of the health care plan, and whether the HCSO constitutes an
"appropriate mechanism to achieve an effective health care plan." In 1975, DHS promulgated
rules defining "basic health care services" and standards to determine whether an HCSO is an
effective health care plan. The rules and standards have never been amended.
The modern marketplace is much different. HCSOs have achieved a high degree of market
penetration. Eleven HCSOs do commercial business in Arizona, with an enrollment of
approximately 1.6 million members. Further, HCSOs have become extremely complex systems
for the financing and delivery of health care, utilizing numerous methods of managing the
delivery and cost of health care beyond the basic "staff model." HCSOs enter into complex
business relationships with health care providers and others in which responsibility for financing
and providing needed healthcare is shared and highly integrated. The complexity of this
business often exceeds the effectiveness and flexibility of the current regulatory system.
DHS does not actively enforce its rules after initial licensure. DO1 has no authority, expertise, or
resources to regulate the delivery of health services. This causes gaps in the regulatory system.
Certain areas of HCSO activity are effectively unregulated which sometimes impairs the
Executive Branch's ability to assist consumers. Development of new legislative policy is
hampered by lack of an effective, comprehensive regulatory structure to implement the policy.
High levels of frustration, confusion, and ignorance regarding the regulatory scheme are
commonplace. See Exhibit 1 for a more detailed description of the current regulatory scheme.
0 ' This report will discuss both HCSOs and hospital or medical service corporations (non-profits) to the extent that
the service corporation offers an HCSO-type product. Therefore, the term "managed health care organization,"
rather than HCSO, is often used to refer to the regulated entities.
- 1 -
11. PROPOSED SENATE BILL 1165
During the 1999 legislative session, lawmakers considered several measures regarding health
insurance reform. Many of those efforts were ultimately consolidated into a single bill: SB
1165.
SB 1165 included provisions to transfer DHS's current statutory responsibilities to DO1 and
completely delete DHS from the field. The bill did not, however, appropriate any new resources
to DO1 to fulfill those responsibilities. DHS has no dedicated resources available for transfer.
The final version of SB 1 165 left the current regulatory system intact, but established a
committee to study the issue of a consolidated regulatory structure. A conference committee
version of SB 11 65 passed the Senate, but failed to pass the House .
Despite the failure of SB 1165, there is growing consensus that regulatory responsibility should
be consolidated in a single agency.
111. ADVISORY GROUP ON CONSOLIDATED REGULATORY OVERSIGHT OF
MANAGED HEALTH CARE ENTITIES
Afier the 1999 legislative session, the Governor's Office instructed the DO1 Director to consider
and make appropriate recommendations concerning a regulatory structure that would consolidate
responsibility and authority within DOI, as proposed in SB 1165. In particular, the Governor's
Office instructed the Director to quantify the resources required to establish an effective
consolidated regulatory structure. At the further direction of the Governor's Office, the Director
appointed an advisory group to assist the Director by providing input from impacted
constituencies.
The Director appointed an advisory group whose members included representatives from the
provider community (physicians and hospitals), the Arizona Health Care Cost Containment
System (AHCCCS), the Department of Health Services (DHS), health care services
organizations (the HMOs), a medical service corporation (Blue Cross), and purchasers and users
of health plan products. The complete list of members is attached as Exhibit 2.
The Director asked the Advisory Group to address the following issues:
1. The design and implementation of a regulatory structure for managed health care entities,
that consolidates responsibility for oversight of corporate, financial, marketing, and
service delivery operations within the Department of Insurance;
2. The powers and support that the Department of Insurance will require to fklfill its
responsibilities under a consolidated regulatory structure;
3. The appropriate scope of responsibility for any other agency or board that currently has
or will have regulatory oversight of managed health care entities and providers, including
the level of responsibility for at least the following:
Inspection, examination, licensure, and ongoing monitoring health care facilities
owned or operated by a managed care entity; and,
Examination and licensure of health care providers.
4. Any legislation or administrative rules needed to effect the recommendations concerning
a consolidated regulatory structure;
5. The time frame and potential sources of funding to implement a consolidated regulatory
structure; and
6. Any other issue or topic relating to the role of the Department of Insurance in a
consolidated regulatory structure for managed care entities.
(See invitational letter attached as Exhibit 3.)
During the latter half of 1999, the Advisory Group, staff from DOI, and the DO1 Director met to
a consider these issues.
IV. WORK OF THE ADVISORY GROUP
The Advisory Group held a series of five meetings, reviewed various materials and research
papers on the subject of managed care regulation, conducted extensive discussions on the
designated issues, developed a survey for other state insurance regulators, and considered the
survey results. (See Exhibits 4 and 5, respectively.)
With the assistance of the Advisory Group, DO1 designed a survey that it issued to all state
insurance regulators. (See Exhibit 6). The survey requested information concerning the kinds
and numbers of managed care entities doing business in each state, the number of enrollees, the
activities subject to regulation, the responsibilities of various state agencies, and the dedicated
resources. The process of designing the survey revealed that the areas of regulation highlighted
by consideration of a consolidated regulatory structure are quality of care, network adequacy,
provider contracting, and risk shifting practices, which will be discussed in this report.
Twenty-four states, including Arizona, submitted survey responses. (See Exhibit 7). The
responses reflect substantial diversity in the way the states address this area of regulation,
including differences in the structure and responsibilities of their state agencies, their laws, their
funding commitments, and the kind of managed care entities operating within their jurisdictions.
This diversity makes it very difficult to draw direct comparisons to Arizona's regulatory scheme.
However, the survey was very useful for gaining an overview and general impressions, and for
identifying relevant laws in other states.
Generally, the responses revealed that most states have some form of bifurcated regulatory
system involving both insurance and health services regulators. There are very few examples of
a wholly consolidated system. In particular, it is very rare to find an insurance regulator
overseeing quality of care and network adequacy issues. Nearly all responding states rely on the
health services regulator to oversee those areas. It was notable that the health services regulator
appears to be an active participant in ongoing regulation in most states. Many states employ
coordinating mechanisms, such as interagency agreements and coordinating councils, to achieve
interagency communication and coordination. DO1 has been unsuccessful in generating these
kinds of arrangements in Arizona.
After considering the survey responses, the Advisory Group selected eight states for more
detailed consideration of their laws based on market similarity or other salient features of the
regulatory scheme. The committee summarized and reviewed the relevant laws of Colorado,
Maine, Maryland, New Jersey, Oregon, South Carolina, Texas and Washington. Again, the laws
of these states reflect substantial diversity in approach. The Advisory Group ultimately
concluded that there is no ideal model for Arizona and that we must use the overview gained
from our discussion to independently envision the best scheme for this state based on its
particular characteristics. (See Exhibit 8.)
V. OVERVIEW AND SCOPE OF CONSOLIDATED REGULATORY STRUCTURE
A. General Considerations
To project the resources needed to establish a consolidated program for regulatory oversight of
managed health care organizations within the DOI, it is necessary to project the nature and
degree of regulatory activity that will be conducted though the program. The following analysis
and discussion of assumptions is based upon the data reviewed and issues discussed by the
Advisory Group, and the experience and instinct of the DO1 representatives involved in this
project. This discussion is not intended in any way to preempt or supercede policy decisions by
elected officials as to the shape and extent of managed care regulation. It is merely a statement
of assumptions and projections upon which a resource analysis is based. The conclusions in this
report would undoubtedly be altered by any subsequent policy developments.
The resource projection is based upon certain general assumptions:
The objective is hll and appropriate implementation of existing law and policy. The
projection does not contemplate the enactment and effectuation of new laws, policies,
or programs. For example, proposals to make DO1 responsible for selecting the
independent external medical reviewer for a health care appeal, to establish a health
insurance information web site, or to create a health insurance ombudsman within the
DO1 are beyond the scope of this projection. Implementation of these or other new
proposals would presumably require additional resources.
The projection encompasses consolidated regulation of "health care services
organizations" and hospital or medical "service corporations" (e.g., Blue Cross Blue
Shield) to the extent the latter offers HCSO products. It does not contemplate
inclusion of dental "service corporations" or "prepaid dental plans," for which there is
an established, active regulatory program within DHS. Presumably, expansion to
include dental managed care organizations would require additional resources in the
form of a transfer of resources from DHS to DOI.
The DO1 will continue to pursue the same regulatory objectives in the areas of
licensing, financial condition, market conduct, and policy form and advertising
oversight, for which it is already responsible.
The area of health service delivery will be a new area of regulation for DOI. There
will be no opportunity for DO1 to rely upon existing resources or expertise. DHS has
no existing program or resources which could be transferred to DO1 or relied upon by
DO1 for assistance and support.
The DOI's role as consolidated regulator of managed health care organizations will
be distinct in material respects from the role of a public purchaser of group health
insurance (e.g., DOA, AHCCCS, HCFA) or a regulator of health care providers and
facilities (e.g., DHS, BOMEX). The DO1 will be focused on regulation at the
organization level of the managed health care organization that contracts with
enrollees to provide health care.
As is the case in other areas of DO1 regulatory activity, except for its specific
statutory responsibilities within the Health Care Appeals program, the DO1 will not
function as a claims adjudicator (e.g., a court or arbitrator) or as a medical peer
review organization.
B. Reyulation of "Ouality"
The principal effect of a consolidated regulatory structure will be to bring new responsibilities to
the DO1 for regulation of managed health care organization "quality". In the context of the
debate concerning regulation of managed care organizations, "quality" is a broad, non-technical
term. It is used to refer to everything from the integrity of an organization's health care delivery
systems to the medical decisions made in particular cases. For purposes of this resource
projection, regulation of "quality" is taken to mean that the DO1 will assume from the DHS the
responsibility to maintain, make determinations under, and enforce rules that establish whether
an HCSO provides for "basic health care services" and whether it "constitutes an effective
mechanism to achieve an effective health care plan." See A.R.S. $5 20-1051(1) and (6); 20-
1053(A)(5) and (1 1); 20-1 054(A)(2); 20-1 058(D); 20-1064(A); and 20-1 065(A)(3). In short, the
general issues in this area are:
- the appropriateness and effectiveness of the organization's systems, policies and
procedures related to health care delivery (such as provider credentialing, utilization
review, medical decision-making, grievances and appeals, corrective and remedial
procedures, customer satisfaction measurement, and record keeping) and
- the adequacy of the provider network and overall access to health services (such as a geographic distribution and availability of network providers).
As a practical matter, this will require the DO1 to assume new responsibilities related to
promulgation and ongoing enforcement of rules, review of applications for licensure, desk audit
and field examinations related to quality assurance systems, and rendering consumer assistance
on "quality" issues. The existing Health Care Appeals program within the DO1 is regarded as a
key component of "quality" regulation, and will be integrated with the new responsibilities to
form the DOI's quality regulation program.
The DO1 will use certain external resources with respect to oversight of an organization's quality
systems. Many organizations submit to quality systems review by private, quality accreditation
organizations, such as NCQA (National Committee for Quality Assurance), American
Accreditation Health Care CommissionKJRAC (Utilization Review Accreditation Commission),
and JCAHO (Joint Commission on Accreditation of Healthcare Organizations). The resource
projections contemplate that the rules promulgated and enforced by the DO1 relative to quality
systems will incorporate this private accreditation review through "deemed" compliance
provisions. In other words, managed health care organizations will be required to establish that
they have achieved and continue to achieve compliance with certain minimum quality assurance
standards, either those set forth in DOI's rules or by a recognized quality accreditation
organization. In addition to maintenance of these minimum systemic standards, each managed
health care organization will also be required to perform in conformance with its quality
assurance systems on an ongoing basis. The DO1 will rely upon its existing authority to use
contract examination personnel to conduct field assessments of ongoing compliance with quality
system requirements. Existing law provides the DO1 with authority to charge examinees for the
cost of these field reviews. The DO1 will have related infrastructure needs with respect to
procurement of these contract services, administration of the contractual relationships, and
billing and payment. Of course, any regulatory action following up on examination findings a must be performed by DO1 internal personnel rather than contractors.
With respect to individual consumer complaints and requests for assistance related to quality
issues, the DO1 assumes that it will provide the same kind and level of assistance that it renders
for other lines of insurance. We will provide consumer-oriented public information and
publications, promote self-help, and facilitate resolutions of disputes. We will maintain and
analyze complaint statistics to assess organizations' overall compliance with quality systems
requirements and to determine the need for field examinations. Other than our responsibilities
with respect to the Health Care Appeals program, we will not adjudicate claims or review
medical decisions.
C. Re~ulationo f Provider Contractin?
The DO1 assumes that consolidation of regulatory authority over managed health care
organizations will not create substantial new regulatory responsibilities for oversight of
contractual matters between managed health care organizations and providers. The basis for this
assumption is that the DO1 is a consumer protection agency, and that our limited resources
should be directed to protection of the interests of consumers under insurance contracts. An
"insurance contract," for purposes of this analysis, is between a consumer and a managed health
care organization whereby the latter assumes from the former the risk to provide and finance
health care if the consumer needs it. In order to perform its obligation under the insurance
contract, the organization enters into numerous and various business contracts, such as provider
contracts, which are not "insurance contracts" in the regulatory sense. Notably, of the laws of
other states reviewed by the Advisory Group, several explicitly provided that the local insurance
regulator shall have no responsibility for enforcement of provider contracts or to adjudicate
disputes thereunder. To proceed otherwise would greatly expand the scope and cost of the
consolidated regulatory structure, as well as alter the fundamental role and orientation of the
DOI.
However, the DO1 will oversee certain provider contracting issues above the individual contract
enforcement level. The DO1 will continue to enforce legal form requirements applicable to
provider contracts, such as prohibitions against gag clauses and the requirement of enrollee hold
harmless provisions. The DO1 will also enforce quality system requirements applicable to
provider relations, such as assuring that an HCSO has an appropriate and effective mechanism in
place to address provider grievances. Further, the DO1 will also continue to monitor and
maintain information concerning provider contract disputes to identify indicators of regulatory
problems. For example, a high degree of provider payment disputes may indicate a liquidity
problem, or the potential for network deterioration.
D. Regulation of Risk Sharin~
Due to the high degree of integration of the health services delivery and health services financing
functions in modern managed health care organizations, a consolidated regulatory structure will
facilitate a more comprehensive and effective approach to regulation of risk sharing
arrangements. This refers principally to "capitation," in its many forms, whereby a managed
health care organization shifts financial risk to a contract provider by pre-payment of an amount
certain as consideration for a contingent level of service. It also refers to the use of "fiscal
intermediaries." These are non-providers, or providers not qualified to render the service in
question, who accept capitation from a managed care organization to arrange for the provision of
services by others. The lack of interactive regulation by both DHS and DO1 has impeded the
development of a regulatory approach to these hybrid issues.
@ Based upon review of other states' laws, and discussion of these complex issues within the
Advisory Group, the DO1 has based its resource projection on the assumption that its regulatory
oversight of risk sharing issues will focus on requirements applicable to the managed health care
organization rather than directly to contract providers or fiscal intermediaries. For example, the
DO1 anticipates enactment of risk based capital (RBC) requirements for managed care
organizations. RBC requirements will replace "static" capital and surplus requirements
(currently $1,000,000) with "dynamic" requirements that vary based on the nature and degree of
an organization's insurance and business exposures. Analysis of RBC requirements takes into
account a managed care organization's financial arrangements with providers and fiscal
intermediaries. In other words, the risk to the public posed by an organization's capitation
arrangements is dealt with through the level of capital and surplus required of the organization.
Similarly, for purposes of this resource projection, the DO1 believes the soundest regulatory
approach is to generally regard capitation arrangements entered into by duly licensed managed
health care organizations as "service" contracts, rather than "indemnity" or "insurance"
contracts. The DO1 does not anticipate the need to license providers or fiscal intermediaries as
risk bearing entities, nor to engage in any direct financial regulation of providers or fiscal
intermediaries. Consistent with the anticipated approach, the DO1 does project the enactment of
legislation or the promulgation of rules applicable to a managed health care organization that
elects to engage a fiscal intermediary. These standards will likely place the managed health care
organization in a quasi-regulatory role by requiring it to establish financial requirements and
monitor financial performance of the fiscal intermediary. The DOI's ultimate concern, however,
will be the managed health care organization's financial condition and performance, and its
compliance with applicable capital and surplus requirements.
The DO1 notes that in the context of fiscal intermediaries there is a significant issue as to
whether the managed care organization remains ultimately at risk for provider payment. Because
this issue does not bear upon the DOI's resource needs, it is not addressed here.
E. Role of Other Replatory A~encies
The Department believes that even a consolidated regulatory structure should recognize and
allow for a continuing role by other agencies and boards that regulate health care providers and
facilities. As stated above, DO1 will regulate managed health care organizations, but will not
directly regulate health care providers and facilities. For example, DHS will continue to regulate
medical facilities, some of which may be owned and operated by HCSOs, and the Board of
Medical Examiners will continue to regulate the conduct of individual physicians.
SB 1165 would have completely deleted DHS from the area of managed health care regulation,
including eliminating its authority to participate in examinations with the DOI. This approach is
not advisable. DHS continues to possess expertise in the health services area that could be very
valuable to effective regulation of managed health care organizations. DHS should remain
authorized to participate in examinations by the DOI. DHS should also serve an express
advisory role to the DO1 with respect to mlemaking and ongoing regulation in the "quality" area.
VI. TIMELINE
The following implementation timeline takes into account the anticipated time periods for
establishment and hiring of new positions with the expertise needed to implement the described
consolidated program. DO1 will require at least partial funding for the positions and start up
costs prior to the effective date for the transfer of authority and consolidated regulatory structure.
The timeline further assumes that DO1 will rely on the existing DHS rules until DO1 can adopt
temporary rules under an exemption from the lengthy and complex rulemaking process required
by the Administrative Procedure Act (APA). At the time of adopting temporary rules under an
APA exemption, DO1 will also commence the APA rulemaking process, with all attendant public
notice and comment requirements, for permanent rules.
July 1,2000 Funding needed for FY 2000-2001 to establish positions
and prepare for consolidated regulatory structure.
July 1,2000 -January 1,200 1 Establish and fill key positions.
January 1,2001 - July 1,2001 Establish and fill remaining positions; Adopt exempt rules
and commence APA rulemaking process to adopt
permanent rules.
July 1,200 1 Effective date for implementing consolidated regulatory
structure within DOI.
VII. SOURCES OF FUNDING
The available funding sources for a consolidated regulatory structure would appear to be either a @ general fund appropriation and assessments of managed health care organizations. Because of
the level of funding required and the relatively small number of licensed organizations (1 1
HCSOs and one service corporation), DO1 recommends an appropriation. In making this
recommendation we are also mindful that the consolidated regulatory structure will include use
of contract examiners to assess the compliance of managed health care organizations with quality
systems standards. Pursuant to existing law, the cost of these examinations will be charged to
the organizations being examined.
We also note that pursuant to A.R.S. 5 20-167, DO1 is obligated to recover 95-1 10% of its
appropriation through its fees charged to various elements of the insurance industry for licensing
and other services. Though the appropriation recommended is not anticipated to cause an
immediate increase in fees, it obviously will eventually impact the degree and timing of future
fees increases.
VIII. ESTIMATED GENERAL FUND RESOURCE REQUIREMENTS
The Department of Insurance will require staff, travel, furniture, equipment, supplies, and office
space at a cost of between $773,417 and $969,222 in the first year, and between $616,736 and
$791,087 in the second year (with similar costs in subsequent years) to implement the regulatory
structure described above. Most of the variation in the range is attributable to salary ranges for
FTE personnel. Based on a position by position review, we recommend a first year
appropriation in a total amount of $885,000, and a second year appropriation in a total amount of
$705,000.
The table on the following two pages enumerates the specific General Fund resource
requirements for implementing a consolidated regulatory structure. Additional assumptions
relied upon to develop the resource requirements can be found in Exhibit 9.
(Balance of this page intentionally left blank)
Estimated General Fund Resource Requirements
MINIMUM /
PERSONAL SERVICES GRADE MIDPOINT (NC) WXIMUM
Office of the Director
P Rules/Legal Analyst (Executive Consultant 11) (NC) 22 46,972 56,739
P Partially fund Public Information Officer position (25%) 23 14,025 14,025
C Reclassify Admv. Secretary I to Admv. Assistant I1 15 3,648 5,466
Life and Health Division
P Quality/Compliance Manager (Medical Consultant I) (NC)
P Quality/Compliance Analyst (NC)
P Quality/Compliance Analyst (NC)
C Administrative Assistant 111
P Uncover and Reclass LifeIHealth AID (NC)
Consumer Services and Investigations Division
P Consumer Services Specialist I1 (Nurse) (NC)
Corporate and Financial Affairs Division
P Senior Financial Analyst (NC)
P Uncover and Reclass Assistant Director (NC)
Administrative Services Division
C Reclassify Admv Assistant I1 to Admv Assistant 111
Information Technology Division
P Reclassify Network Specialist I to Network Specialist I1 22 7,595 9,058
[C: Clerical, P: Professional -- In Minimwn/Midpoint column, minimum salary shown for clerical, midpoint saliuy shown for professional]
'NC indicates the position is "Not Covered" by (or exempt kom) the state personnel rules.
EMPLOYEE-RELATED EXPENDITURES
@, 26.84% of Personal Services
PROFESSIONAL & OUTSIDE SERVICES
Technicalhledical Services
IN-STATE TRAVEL
Travel for training, on-site conferences
OUT-OF-STATE TRAVEL
Travel for nationallreaional conferences and seminars
FURNITURE, EQUIPMENT AND SUPPLIES UNIT EXTENDED EXTENDED
Desk, double pedastel
Desk, secretarial
Credenza
Computer stand
Chair, ergonomic, swivel wl arms
Chair, ergonomic, side wl arms
Bookshelf, 5-shelf
Bookshelf, 2-shelf
File cabinet, 5-drawer, vertical, legal, locking
File cabinet, 2-drawer, vertical, legal, locking
Transcriber, microcassette, desktop
Transcriber, microcassette, hand-held recorder
Calculator, 10-key, printing w/ display
Personal computer wl software and LAN connection
Training (managed care seminars, et al).
Postage
Formslenvelopes
Miscellaneous workstation supplies
Increased telephone maintenance cost
Additional telephone lines (3 ea)
Subscription to A.R.S. Title 20
Anti-static floor mats
Fax machine, plain paper
Photocopier
Network printer, laser
Power strips
Photocopier maintenance, annual
Fax maintenance, annual
Fax/~hotoco~ier/~rintotenre rlsu~~lieasn. nual
INFRASTRUCTURE
Office space at remote location (3,000 s.f. to move FU) 17lsflyr 51,000 5 1,000
FU relocation costs 20,000 20,000 20,000
Internal relocation and remodeling costs 50K-75K 50,000 75,000
Voiceldata wiring at remote location (16 @ 300) 300 4,800 4,800
Local telephone system reprogramming 1,200 1,200 1,200
Remote telephone system replacement (30-user capacity) 45,000 45,000 45,000
LAN expansion (switch) at remote location 3,000 3,000 3,000
Less one-time expenditures
Plus computer maintenance costs
Plus 2.5% salary increase (PIS and ERE)
A. Personnel
In projecting the resources required to implement a consolidated regulatory structure,
0 DO1 considered two alternatives: (1) creating a new Managed Care Division or Section,
and (2) incorporating consolidated responsibilities into DOI's existing organizational
structure. We decided to propose integration of the responsibilities into the existing
structure because we believe that will be more economical and more efficient for DO1 as
a whole.
Assumption of the new responsibilities, and the addition of personnel in several divisions
to effectuate them, will undoubtedly increase demands on the Office of the Director, the
Administrative Services Division, and the Information Technology Division, which
provide service to, and derive activity from, all other areas of DOI. We have sought
ways to meet these additional demands without the creation of entire new positions when
not absolutely necessary. Consequently, we have proposed the reclassification and
enhanced funding of certain existing positions where possible. These enhancements will
hopefully enable DO1 to attract and retain qualified personnel in support positions that
will be even more critical in light of our new responsibilities.
We are proposing that the "professional" positions created and revised through this
proposal be "non-covered." This enables us to pay higher salaries, recruit and retain a
higher level of qualified personnel, and exercise a higher degree of flexibility and
discretion with respect to the ongoing management of these positions. Clerical and
support positions are proposed as "covered."
a The Department requires between $470,700 and $6 12,500 to pay for the salaries, benefits
and employer payroll taxes for the following additional staff.
1. Office of the Director
a. One FTE Rules Analyst (Executive Consultant II) is needed for the extensive
rulemaking responsibilities that will be required to implement and maintain this
program. The analyst will draft rules in compliance with the requirements of the
Administrative Procedure Act (APA), and the rules of the Governor's Regulatory
Review Council (GRRC) and the Secretary of State. The analyst will be fully
responsible for coordinating the public participation process required under the APA.
It is anticipated that all rulemaking activity will be the subject of extensive public
comment and debate from interested stakeholders (consumers and providers as well
as the managed health care organizations), and will likely necessitate multiple public
hearings throughout the state. There will be intensive rulemaking activity at the
outset of the program, as well as substantial follow up activity. Managed care is a
dynamic industry and any rules will need to be periodically amended to reflect
changing industry practices.
The DO1 notes that it currently has no rules analyst on its staff. This is a substantial
resource deficiency. Considered cumulatively with the DOI's existing rules
responsibilities, these functions will no longer be able to be properly performed
without at least one FTE dedicated to rules activities.
b. Partially Fund Public In formation Officer (PIO) Position (25 %). The PI0 position
will be highly impacted by the assumption of regulatory responsibility for quality
issues. There will be a substantial need for development of consumer oriented
literature in this area, and for the ongoing handling of media and public inquiries into
DO17s activities. In short, there will be great public interest in the program and a
responsibility for DO1 to satisfy that interest. DO1 currently has a PI0 position on the
Director's staff. However, it is an unfunded position recently created by the Director
based purely on the great need for the position. DO1 believes attributing 25% of the
PIO's activity to managed care quality issues is a reasonable estimate.
c. A reclasszfication of one Administrative Secretary to an Administrative Assistant II
is required to provide administrative support to the rules analyst. The state's
rulemaking process is highly detailed and complex requiring higher level
administrative support. Under the rulemaking analyst's direction, the administrative
assistant will maintain the rulemaking record and rulemaking docket, coordinate
public hearings, and assist in preparation of rulemaking packages. An upgrade in
administrative support for the Director's Office is also necessitated by the additional
demands that responsibility for quality regulation will place on the Director and his
executive staff to interact with the many interested constituencies and to oversee this
new area of operational activity within the DOI.
2. Life and Health Division
a. One FTE Quality/Compliance Manager is required to administer the new program
for monitoring compliance with standards applicable to the delivery of health care by
managed health care organizations and their quality assurance plans. The Manager
will develop standards for identifying and correcting deficiencies found in an
organization's health care and quality assurance plans and will be responsible for
monitoring and reviewing the work of independent contractor examiners. The
Manager will be required to communicate and interact directly with the
organization's medical directors and executives as necessary. The
Quality/Compliance Manager shall be established as a non-covered exempt position
giving the DO1 greater flexibility with recruitment, compensation, and employment
issues.
b. Two FTE Quality/Compliance Analysts and one Administrative Assistant III are
needed to review and monitor the organizations' health care plans, quality assurance
plans, proposed geographic service areas, and medical records systems. Analysts will
monitor on an ongoing basis for compliance with corrective action plans as directed
by Quality/Compliance Manager. The two analyst positions shall be established as
non-covered (exempt) positions.
c. A reclasszfication of the Life and Health Assistant Director from pay grade 24 to
pay grade 25, and from a covered to non-covered position, is required to reflect the
increasing complexity of issues for which the Assistant Director is responsible, and to
enable the Department to establish subordinate positions as non-covered positions
pursuant to A.R.S. 5 41 -771 (B)(2).
3. Consumer Services and Investigations Division
One FTE Consumer Services Specialist 11 is required to assist consumers and respond to
and investigate complaints and inquiries concerning issues relating to quality of health
care and network adequacy. DO1 anticipates public information and outreach efforts,
through the public information officer position, to increase public awareness of consumer
rights and DOI's regulatory responsibilities in the quality area, which will increase the
demand for consumer assistance.
4. Corporate and Financial Division
a. One FTE Senior FinancialAnalyst is required to analyze financial statements and
target financial examinations to ensure that each managed health care organization
has and maintains a sound financial condition, and to ensure that each organization is
continually able to meet its liabilities and obligations to policyholders and enrollees.
The Analyst will specialize in financial issues unique to managed health care
organizations, such as the impact of provider network structure on financial
soundness. The Analyst will monitor and review work performed by independent
contractor examiners and will correspond with the organization's executives as
necessary about concerns, findings, and corrective action plans. The Senior Financial
Analyst position shall be established as a non-covered position, giving the
Department greater flexibility with recruitment, compensation, and employment
issues.
The DO1 notes that it currently has no employee financial analyst position dedicated
to oversight of managed care organizations. This is a substantial resource deficiency.
This area requires specialized knowledge due to the service (as opposed to pure
indemnity) nature of the managed care business and the high degree of integration of
health services delivery and financial functions. An effective consolidated regulatory
structure must address this deficiency.
b. A reclasszjication of the Assistant Director from pay grade 25 to pay grade 26, and
from covered to non-covered status, is required to reflect the growing complexity of
issues for which the Assistant Director has become responsible, and to enable the
Department to establish subordinate positions as non-covered positions pursuant to
A.R.S. fj 41-771 (B)(2).
As the Department adds employees, other Divisions are impacted, such as Administrative
Services and Information Technology. These Divisions become more stressed with new
programs. Therefore, it is necessary to make the following reclassifications.
5. Administrative Services Division
A reclasszjication of one Administrative Assistant 11 to Administrative Assistant IA
is required to enable the Administrative Services Division to attract and retain staff
capable of delivering centralized administrative services to the DO1 amidst the
growth of the agency, both in terms of population and function.
6. Information Technology Division
A reclassification of one Network Specialist I to Network Specialist 11 is required to
enable the Information Services Division to attract and retain staff capable of
developing complex computer applications. ' Applications and systems maintenance
are especially difficult because of interfaces among the DOI's IBM AS1400 midrange
computer, its local area network, and external databases and information sources.
The reclassified position shall also create and support Internet-based applications that
will facilitate electronic information transfers and processing. Obviously, regulation
of quality issues will require development of new applications and databases at DOI,
and handling of associated hardware maintenance. Further, DO1 may be required to
interface with automated systems of managed health care organizations and other
outside entities.
B. Professional and Outside Services
DO1 requires between $50,000 and $75,000 to pay for professional, medical, and technical
services that may be required as the program is developed and implemented, and as unusual,
complex and unanticipated issues arise from the additional responsibilities added to the DOI.
Such professional and outside services may include consultation by medical professionals with
respect to the development and implementation of quality standards, contractors procured by the
Attorney General to provide guidance on legal issues, information technology consultants with
expertise specific to the managed care industry to suggest ways to most efficiently and
effectively transfer and process information, etc. These services are necessary to provide a
smooth transition with uninterrupted oversight during the consolidation process.
C. Out of State Travel
The DO1 requires between $5,000 and $7,500 to enable the QualityICompliance Manager to
travel to regional and national meetings concerning managed care regulation.
D. Furniture. Eaui~menta nd Supplies
The DO1 requires approximately $73,700 in the first year to pay for the furniture, equipment,
maintenance, telephone lines, and supplies required by adding six new employees. In subsequent
years, the DO1 shall require $26,300 to pay for increased supplies, communications, and
equipment maintenance costs. A detailed listing of required furniture, equipment, and supplies is
provided in the Estimated General Fund Resource Requirements above.
E. Infrastructure
The DO1 does not have sufficient office space to house additional staff. The DO1 Life and
Health Division and Consumer Services and Investigations Division already have a number of
offices shared by employees in very tight quarters. DO1 recently divided one of its meeting
rooms into three offices to mitigate the overcrowded conditions in its Consumer Services and
Investigations Division. The State Fire Marshall has criticized the DO1 for inadequate
passageways because furniture, equipment, and staff too densely occupy existing office space.
In its main Phoenix office, the DO1 has 138 employees, and 13 on-site contractors and field
examiners who use space when conducting research or finalizing examination reports. The DO1
also maintains a six-person satellite office in Tucson and rents privately owned office space at
the Phoenix Financial Center for the seven staff members of the Arizona Insurance Guaranty
The DO1 considered four office space alternatives:
1. Relocate the main Phoenix Office into adequate office space at a total additional first-year
cost of $491,900 and $1 61,900 in additional rent in subsequent years.
2. Expand the DO1 by 7,000 square feet into additional Sun State Building office space
at between $191,200 and $216,200 in additional first-year costs and $109,000 in
increased annual rent thereafter.
3. Expand the DO1 by 3,000 square feet into additional Sun State Building office space
at between $1 16,900 and $1 3 1,900 in additional first-year costs and $1 09,000 in
increased annual rent thereafter.
4. Rent 3,000 square feet of privately owned office space at between $175,000 and
$200,000 in additional first-year costs and $5 1,000 in increased annual rent thereafter.
For a more detailed look at the four alternatives, see Exhibit 10.
Each of the alternatives presented has benefits and drawbacks. However, Alternative 4 appears
to be the most feasible and has been presented in the Estimated General Fund Resource
Requirements above. For a more detailed look at the Evaluation of Alternatives and
Recommendation, see Exhibit 11.
F. Conclusion
The resource projections above are not overstated with the expectation that they will be reduced @ through the legislative process. We have made this projection as forthrightly as possible. In
fact, DO1 believes, and many Advisory Group members expressed the view, that these
projections are conservative.
We also note that these projections are as accurate as we can make at this time, before we have
begun to encounter actual implementation issues and gain experience in a wholly new area of
regulation. As this program unfolds, the need for additional resources may be revealed,
particularly in the Life and Health Division and the Consumer Services and Investigations
Division. If that occurs, we hope our conservatism at this time will be appreciated and that any
requests for additional resources will be regarded as credible and favorably considered.
EXHIBIT 1
CURRENT REGULATORY SCHEME
I. Department of Insurance
a. Licensing
Pursuant to A.R.S. $20-1054, HCSOs may be issued a certificate of authority if the director finds
that the following conditions are met:
a. The persons responsible for conducting the affairs of the HCSO are competent and
trustworthy and are professionally capable of providing or arranging for the
, provision of health and medical services being offered.
b. The HCSO constitutes an appropriate mechanism to achieve an effective health care
plan, in accordance with rules adopted by the director of DHS, which shall include
at least the basic health services.
c. The HCSO is financially responsible and may reasonably be expected to meet its
obligations to enrollees and prospective enrollees.
d. Each officer responsible for conducting the affairs of the HCSO has filed with the
Director, a fidelity bond in the amount of $50,000.
b. Financial Requirements
Arizona law does not impose dynamic, or risk based, capital requirements on HCSOs. HCSOs
must possess and maintain unimpaired capital or surplus, or both, in the amount of $1.5 million at
the time of obtaining a certificate of authority, and $1 million thereafter. In addition, the HCSOs
are required to maintain on deposit with the State Treasurer through the Director's office an
amount of not less than $500,000. Also, the DO1 has set reserve requirements, wherein the HCSO
must at all times maintain a financial reserve consisting of two per cent of charges collected from
enrollees for the health plan, until the reserve totals $1 million. The State Treasurer shall hold the
reserve in trust for the protection of the HCSO's enrollees.
Each HCSO is required to submit an insolvency plan to DOI. The actuarially approved plan for
the risk of insolvency must cover continuing benefits for enrollees for the duration of the contract
period (or at least sixty days after insolvency, whichever is longer) and continuation of benefits for
those enrollees confined in an inpatient facility on the date of insolvency.
The plan for the risk of insolvency must include an actuarial memorandum describing the basis on
which the actuary concludes that the HCSO will meet its continuation of benefits requirements, as
stated above.
The HCSOs are required to submit quarterly and annual reports to DO1 including its financial
statements.
C. Examinations
DO1 is responsible for examining the HCSOs' financial condition, its ability to meet its liabilities
and compliance with Title 20. DO1 may perform these financial examinations at any time.
DO1 has the power to conduct market conduct examinations of the HCSOs, although it is not a a mandatory responsibility. DO1 may examine an HCSO to assure that the contracts issued by the
HCSO to individuals and groups contain coverage for services as required in DHS regulations and
Title 20. (DHS may share in this examination responsibility, as discussed later.)
Examinations typically involve the review of an HCS07s claims handling, underwriting, HIPAA
compliance, appeals procedures, Accountable Health Plan compliance, utilization review,
marketing and advertising, mandated benefits, form filing, complaints and Privacy Act compliance.
While we do not evaluate the quality of care delivered within an HCSO, given the examination
authority under A.R.S. 920-1058 (A), we have examined a company's compliance with some DHS
rules and its own utilization review plan.
d. Grievance and Appeals
In July, 1998, DO17s Health Care Appeals Program became effective, giving consumers the ability
to appeal adverse decisions by HCSOs, as well as other insurers.
The mandatory appeals process generally must include four separate levels of review. To begin the
review process, the member must make the request to their HCSO. Appeals may involve cases in
which an insurer denies a request for a service or a request for payment of a claim for a service
already received.
The four levels of review are:
a. Expedited Medical Review
b. Informal Reconsideration
c. Formal Appeal; and
d. External Independent Review.
@ Cases that reach the External Independent Review stage are evaluated by either the DO1 (to
determine coverage issues) or an External Independent Reviewer (to determine medical necessity
issues).
e. Utilization Review
DO1 issues certificates to utilization review agents meeting all of the requirements of Title 20,
Chapter 15. DO1 must examine the affairs, transactions, accounts and records of each utilization
review agent before issuing an initial certificate. However, the DO1 does not make any
determinations of quality of care, appropriateness of utilization review recommendations or
medical necessity relating to any plan of care or treatment.
f: Forms and Advertising
HCSOs must submit all advertising and solicitation material, as well as forms, to the DO1 for
approval prior to their use.
Advertisements must be truthful and not misleading in fact or in implication. Words or phrases,
whose meaning is clear only by implication or by familiarity with insurance terminology cannot be
used. Words or phrases which mislead or have the capacity and tendency to deceive as to the
extent or any policy benefit payable, loss covered or premium payable, shall not be used.
Evidence of Coverage and contracts are reviewed to assure they contain all of the benefits, services
and provisions required by law.
*
De~artmenot f Health Services
a. Licensing
In addition to its application for a certificate of authority submitted to DOI, an HCSO must submit
a statement describing its health care plan or plans, facilities, personnel and geographic area to
DHS for approval. DHS notifies the HCSO of its approval or denial of the statement. DHS
forwards a copy of this notification to DOI.
b. Examinations
DHS is also provided authority to examine HCSOs. DHS may examine the HCSO to verify
existence of an effective health care plan and to review the delivery of health and medical services.
In addition, HCSO facilities and any primary care physician with whom the HCSO contracts for
services on a continuing basis is subject to inspection by DHS.
Interagency Coordination
1. Licensing
An HCSO must submit a copy of its application for a certificate of authority, as well as the
aforementioned statement, to both DO1 and DHS for approval. DHS provides the HCSO with a
letter to confirm that the HCSO constitutes an a-p-p ro-p riate mechanism to achieve an effective health
care plan. DHS provides DO1 with a copy of this letter, in order for DO1 to complete the issuance
@ of the certificate of authority.
2. Examinations
DO1 has attempted to initiate joint examination activity with DHS, but has been unsuccessful.
3. Other Coordination
From time to time, when DO1 receives a large number of complaints regarding an HCSO's quality
of care or network adequacy, DO1 has attempted, without substantial success, to obtain DHS'
assistance.
DHS undertakes no fbrther managed care oversight activity, with the exception of an HCSO's
request to change its statement regarding its health plan or its description of the geographical area
to be served.
4. Intern- overnrnental Ameements
There are currently no intergovernmental agreements or operational coordinating mechanisms
between DO1 and DHS in place. DO1 has attempted to initiate such coordinating activity, but has
been unsuccessful to date.
EXHIBIT 2
ADVISORY GROUP ON REGULATORY OVERSIGHT OF MANAGED CARE
NAME ORGANIZATION ADDRESS PHONE # FAX #
Steve Barclay
Mary Ellen Dalton/
Debra Nixon
Barclay & Goering
Health Services Advisory
Group
Sheri Farr, Sr. Director of Policy &
Regulatory Affairs
Bob Reddemann
Samantha Fearn, Executive
Director
Replaced by Michelle Cove1
1501 W. Fountainhead Pkwy.,
Ste. 650
Tempe, AZ 85282
Arizona Hospital and
Healthcare Association
David Landrith
VP for Policy & Political Affairs
1001 N. Central, #600
Phoenix, AZ 85004
301 E. Bethany Home Rd., Ste,
B157
Phoenix, AZ 85012
National Federation of
Independent Business
Branch McNeal, Assistant Director
Kari Price
(480) 968-1 083
Arizona Medical
Association
Anthony Mitten
Executive Director
(602) 340-1 01 0
(602) 665-61 01
(602) 665-6108
(480) 967-2029
2907 N. 2nd Street
Phoenix, AZ 85012
Arizona Health Care Cost
Containment System
Sue Navran
General Counsel
(602) 340-1 5 15
(602) 241-0757
8 10 W. Bethany Home Rd.
Phoenix, AZ 85013
Maricopa County Medical
Society
Mike Schaiberger
Benefits Manager
(602) 263-7690
801 E. Jefferson
Phoenix, AZ 85034
Don Schmid
(602) 263-7790
(602) 246-8901
326 E. Coronado Road
Phoenix, AZ 85004
Blue Cross Blue Shield of
Arizona
Arizona Department of
Administration
Don Hughes
Executive Director
(602) 242-6283
(602) 4 1 7-445 8
2444 W. Law Palmaritas (602) 864-4179
P.O. Box 13466
Phoenix, AZ 85002-3466
Arizona Department of
Health Services
(602) 256-642 1
(602) 252-2015
(602) 864-4084
1624 W. Adams
Phoenix, AZ 85007
Arizona Association of
HMOs
(602) 256-2479
1740 W. Adams, Rm. 407
Phoenix, AZ 85007
(602) 542-5008
2415 E. Camelback Rd., Ste. 700
Phoenix, AZ 85016
(602) 542-4744
(602) 542- 1020 (602) 542- 1062
(602) 508-6077 (602) 508-6078
EXHIBIT 3
STATE OF' AFUZONA
DEPARTMENT OF INSURANCE
JANE DEE HULL
Governor
2910 NORTH 44th STREET, SUITE 210 CHARLES R. COHEN
PHOENIX, ARIZONA 85018-7256 Director of Insurance
6021912-8456 (phone) 6021912-8452 (fax)
http://www.state.az.us/id
June 11,1999
ADDRESS
Phoenix, AZ 85
re: Advisory Group for Regulatory Oversight of Managed Health Care Entities
Dear
The Department of Insurance and the Department of Health Services currently share
statutory responsibility for regulatory oversight of managed health care entities. During the last
legislative session, there were some proposals to consolidate responsibilities within the
Department of Insurance. Senate Bill 1165, which ultimately failed to pass, proposed creation of
an advisory board on consolidated licensure and regulatory oversight of health care plans.
In keeping with its ongoing commitment to improve administration of state government,
the Governor's Office has instructed me to consider and make appropriate recommendations
concerning a regulatory structure for managed health care entities that consolidates
responsibility and authority in the Department of Insurance. I have been directed to appoint an
advisory group that will assist me by providing input from impacted constituencies. I appreciate
your willingness to serve on this Advisory Group and to contribute your experience and
expertise to this project.
The Advisory Group will assist me in studying and developing recommendations on the
issues outlined in the enclosed summary and will include representatives from the following
areas: the managed care industry, providers (hospitals and physicians), enrollees, employers,
AHCCCS Office of Managed Care, and Department of Health Services. I anticipate that the
group will meet several times between now and the end of the year. Someone from my office
will contact you shortly to arrange a mutually convenient date for the first meeting, which we
hope to schedule for the early part of July.
Knowing that time is short, I have already directed my staff to develop a survey
instrument to gather information from other states concerning their regulatory structures for
managed health care entities. Although we are anxious to get the survey out to other states, we
feel the that the members of the Advisory Group should have a chance to review and comment
on the instrument. So that we can make the most productive use of the limited time we have
available, I ask that you review the enclosed survey prior to the group's first meeting and come
June 11,1999
Page 2
prepared to comment on it. We expect to send it out immediately after the first meeting in the
hope of getting responses by late August.
Thank you again for your willingness to participate on the Advisory Group. Please feel
free to convey any observations that might improve these plans.
Sincerely,
Charles R. Cohen
Director of Insurance
Enclosures
c: Mr. Stuart Goodman, Office of the Governor
EXHIBIT 4
Managed Care Oversight Advisory Committee
Minutes of the July 23,1999 Meeting
Advisory Group Attendees:
Chuck Cohen, DO1
Vista Brown, DO1
Tony Mitten, Maricopa County Medical Society
Debbie Nixon (for Mary Ellen Dalton), Health Service Advisory Group
Steve Barclay, CIGNA Health CareMay0 Health Plan
Sue Navran, Blue CrossBlue Shield
Sheri Farr, AZ Hospital & Healthcare Association
Mike Schaiberger, DOA
Kari Price (for Branch McNeal), AHCCCS
Bea Casey (for Don Schmid), DHS
David Landrith, AZ Medical Association
Tammi Goldberg, DO1
Mary Butterfield, DO1
The meeting commenced at 9:00 a.m.
I. Openin? Remarks:
Chuck Cohen welcomed everyone to the first Advisory Group meeting. Attendees
introduced themselves and informed the group of the organization helshe represents.
Chuck Cohen provided background for the issues to be addressed by the group.
111. Discussion of Issues:
What kind of regulatory structure for managed care should we have in Arizona?
" Title 20 covers HCSOs, Hospital, Medical, Dental and Optometric Service
Corporations.
" Laws from the 1970's set up a dual regulatory system between DO1 (regulating
forms & advertising, licensing, financial regulation, and market conduct) and
DHS (regulating quality and effective health care services of these organizations).
" Today, health care financing and service delivery are much more integrated and
complex.
" Current laws are too antiquated to deal with current issues.
" DHS7s rules are over 20 years old and not up to modern standards.
" DO1 does not have the authority, expertise, or resources to regulate the delivery
of health services.
There are gaps in the current system.
" Managed care is a largely unregulated industry.
" Consumers and providers have no where to turn for help.
" If new laws were passed, there is inadequate regulatory infrastructure to
implement them.
Proposed Senate Bill 1 165 (Patient Protection Act)
" Bill did not pass.
" Proposed deleting DHS from Title 20
All regulatory responsibility would be given to DOI, but no resources
were allocated.
What should the regulatory framework look like?
" Should DO1 be responsible for all the regulation, or should it be a multi-agency
system? If the latter, how will it be coordinated?
" Should we give more resources to DHS, or should the DO1 be a "super agency"
and have all the authority and the resources?
Do we know what other States' agencies do to regulate managed care?
IV. Materials
@ Chuck Cohen handed out the "Iceberg" Chart - describes the DOI's current
responsibilities and the proposed DO1 responsibilities, pointing out the resource
deficiencies.
Chuck Cohen handed out a report entitled "Quality Oversight in Managed Care: The
Role of Interagency Coordination", prepared by the National Academy for State Health
Policy. This report describes the efforts undertaken in Washington, New Jersey and
Maine to coordinate interagency health care quality oversight functions. The report
indicates that other states are grappling with the same issues.
V. Issues to think about for the next meetinp
What kind of work product should we put together? (A formal report? A draft bill?)
How will this affect the state's budget? Are we anticipating a supplemental budget
request in the next session?
Interim report.
VI. Discussion
Debbie Nixon suggested that we make a matrix to see the overlap of all agencies (state
and federal).
Steve Barclay commented that that may be too much to sort out.
Steve Barclay asked whether any thought had been given to deemed status relying on
the work of quality accrediting entities.
Chuck Cohen agreed, reliance on accrediting entities would be appropriate, to some
extent.
Chuck Cohen passed around a chart from the NAIC that diagrams the regulation of
managed care.
David Landrith remarked that we need the resources in order to make a new system and
we need resource allocation.
Chuck Cohen passed out the "Iceberg" breaking down the current DO1 responsibilities
from the proposed DO1 responsibilities, pointing out resource deficiencies.
Steve Barclay asked if the NAIC had any model acts that we could look at.
" Chuck Cohen said we would check with the NAIC, but suspected that there was
little available other than a very general white paper from a working group called
CLEAR (Consolidated Licensure of Entities Assuming Risk).
Steve Barclay mentioned that Ohio has hctional managed care regulatory laws, and
suggested the group look at Ohio's system.
Chuck Cohen handed out a report entitled "Quality Oversight in Managed Care: The
Role of Interagency Coordination", prepared by the National Academy for State Health
Policy. This report describes the efforts undertaken in Washington, New Jersey and
Maine to coordinate interagency health care quality oversight functions. The report
indicates that other states are grappling with the same issues.
David Landrith asked if the phrase "health care providers" in 3b of the issues handout, a was referring to individual physicians and nurses.
" Chuck Cohen answered that the "health care providers" is referring to facilities,
not physicians and nurses. However, it was included more for the idea that there
were limits as to how far the "super agency's" authority should extend.
Someone asked if we could get information on what Ohio has done, how much they
have budgeted for this oversight, what resource deficiencies they have in their current
system and what weaknesses they have found in their current system. The Department
agreed to request this information.
Kari Price asked what does DO1 do if it does not have the authority and resources to
handle something for a consumer.
" Chuck Cohen answered that DO1 always tries to identify if there is any help we
can give the consumer. Sometimes we can intervene and resolve an issue even
though we have no formal authority to mandate a particular solution.. Thg e n t
situation with Premier illustrates the limitations and problems DO1 faces.
Some problems that have occurred: people in rural areas cannot get in to see specialists
and call DO1 for help. However, under statute, DHS regulates the effectiven%s,& the
health care delivery plan, including geographic network and adequacy issues. ,-
Kari Price asked if we could categorize the complaints DO1 receives, grouping
necessary resources with the complaints.
DO1 will describe the current regulatory system similarly to the format utilized in the
NASHP paper to identify current problems and deficiencies.
Chuck Cohen described one type of problem DO1 has faced: health care providers
bearing risk; HMO capitates with fiscal intermediaries who contract with the doctors.
Essentially the HMO contracts away its risk. (FPA, RBP)
DO1 does not have the authority to do anything about this situation. DO1 needs authority
to address this issue, which would require new law.
David Landrith said that his group is very interested in seeing law to address the issue
of fiscal intermediaries, but it is also important for us all to educate Legislators on the
need for the resources that will be required to put an effective regulatory structure in
place.
Chuck Cohen pointed out that DO1 has recently included managed care specialists in its
teams of market conduct examiners, but that the DO1 would still be limited by an absence
of authority to regulate risk sharing mechanisms.
Survey Discussion
" Survey will be sent to all states.
" Add to question No. 2, and everywhere else where appropriate, Grievance and
Appeals, Utilization Review, Rates, and Forms and Advertising.
" Include a question asking what type of multi-agency coordination does your
state have.
" Change No. 14 to include a scale of 1-10, with a space for comments.
" Include a follow up question after No. 14 asking if the state has any planned
enhancements or improvements.
" Have the Arizona DO1 fill out the survey.
" Once results are received, ask a few states what they do regarding accreditation.
" Address the rural network problem in the second phase of the survey.
Survey procedure
O Get the survey out within the next two weeks.
" Give the state 30 days to complete the survey.
" Give DO1 two weeks to compile the data.
VII. Next Meetin?
Meet in Mid August to discuss Arizona's answers to the survey and what Ohio has
been doing.
Meet during the second half of September to discuss the survey results and other issues.
Meeting adjourned at approximately 10:45 a.m.
Managed Care Oversight Advisory Committee
Minutes of the August 23,1999 Meeting
Advisow Group Attendees:
Chuck Cohen, DO1
Vista Brown, DO1
Mary Butterfield, DO1
Tammi Goldberg, DO1
Gary Torticill, DO1
Erin Klug, DO1
Tony Mitten, Maricopa County Medical Society
Herb Rigberg (for Mary Ellen Dalton), Health Service Advisory Group
Steve Barclay, CIGNA Health CareMayo Health Plan
Sue Navran, Blue Cross/Blue Shield
Sheri Farr, AZ Hospital & Healthcare Association
Mike Schaiberger, DOA
Kari Price (for Branch McNeal), AHCCCS
Don Schrnid, DHS
David Landrith, AZ Medical Association
Samantha Feam, NFIB
The meeting commenced at 2:45 p.m.
I. Opening. Remarks
Chuck Cohen welcomed everyone to the second Advisory Group meeting.
11. Minutes of July 23. 1999 Meeting
The Advisory Group reviewed and adopted the Minutes of the July 23, 1999 meeting.
111. Materials
The following materials were sent to Advisory Group members prior to this meeting:
Agenda for August 23, 1999 meeting.
Minutes of the July 23, 1999 meeting.
Managed Care Oversight Survey -partially completed by ADOI.
Arizona Managed Care Oversight Summary.
HIAA paper entitled "Federal and State Regulation of Health Insurance and
Health Benefits".
Letter dated August 3, 1999 from Representative Barbara Leff regarding
managed care improvement work groups.
Letter dated August 3, 1999 from Senator Edward Cirillo regarding the Senate
Select Task Force on Managed Care Reform.
IV. Discuss Timeframe of Advisorv Group
The Governor's office has informed Chuck Cohen that the Advisory Group should
create a written report containing recommendations for the regulatory structure,
including costs, that should be implemented in Arizona. The report will likely be
shared with interested legislators. At least a preliminary report should be issued in
time to be part of the discussion in the upcoming legislative session. Chuck Cohen
established January 2000 as a target.
V. Review and Discussion of Partially Completed Arizona Survey Results
Mary Butterfield discussed the DO17s partial answers to the Managed Care
Oversight survey.
Steve Barclay suggested that the DO1 eliminate Dental and Optometric Service
Corporations from its response to question Number 1. Including these organizations
may give an inaccurate picture of managed care in Arizona.
In question Number 2, under Market Conduct, Corporate and Financial needs to be
removed and replaced with Market Conduct. DHS needs to be added under Quality
of Care and Network Adequacy for HMOs.
Arizona's hll-time employee staff dedicated to regulation of managed care entities
is comprised of 75% of each of six positions. However, these positions were added to
DO1 as part of the enactment of the Health Care Appeals laws. As such, these
positions work specifically in Health Care Appeals.
Arizona employs field examiners in its market conduct and financial exams. DO1
procures examiners through DOA's procurement process and bills the insurer for the
costs associated with the exams.
VI. Discussion of Arizona Managed Care Oversight Summary
David Landrith volunteered to provide the Advisory Group with a glossary and
other background information distributed at the recent Town Hall meeting.
VII. Overviews of Current DO1 Regulatory Activity
A. Financial Overview (Garv Torticill)
An HMO may receive a Certificate of Authority if financially responsible and
if it constitutes an effective health plan pursuant to the DHS rules. DO1 typically
receives a letter from DHS stating that the HMO is an effective health plan.
Arizona law provides static, rather than dynamic net worth requirements. The
requirements are as follows:
" Plans must have a $1.5 million net worth at licensure, and maintain $1
million thereafter.
" Plans must establish and maintain a minimum statutory deposit of
$500,000.
Plans must establish a balance sheet reserve equal to 2% of enrollee remittances,
up to $1 million.
In addition, plans must develop an insolvency plan providing for two months
continued operations.
Financial requirements are enforced via required filing of financial statements
and financial examinations.
HMOs in Arizona are generally exempted from the provisions of the Holding
Company Act.
Arizona does not directly regulate "fiscal intermediaries" which accept risk
from HMOs and further manage it through contracts with providers. There is no
reporting structure or regulatory scheme to oversee this area.
B. Financial Discussion
Sue Navran asked whether HMO financial statements include liabilities for
costs that may arise when fiscal intermediaries or providers fail to perform.
Chuck Cohen and Gary Torticill explained that unless and until a failure to
perform develops, the only liability would be the capitated cost of the contract.
As additional liabilities develop due to failure to perform, they must be added to
the financial statement. HMOs are not specifically required to actuarially justify
the prospective costs assigned to provider services.
Chuck Cohen commented that DO1 has expertise regulating legal reserve
financial institutions (indemnity insurers). HMOs are not merely indemnitors, but
also, specialized service providers. Integration of financial and service functions
makes regulatory oversight more complex. DO1 lacks jurisdiction, expertise and
resources to oversee all HMO fiscal and service arrangements.
Kari Price commented that AHCCCS stays out of HMOs' contracts with
providers. AHCCCS holds health plans accountable for providing services even
if an intermediary, who already received capitation from the health plan, goes
under. In addition, AHCCCS requires stop loss insurance and conducts member
surveys to make sure members are receiving services.
Sue Navaran mentioned AHCCCS' performance bond requirement which
provide assurance that the HMO will be able to continue paying claims.
Chuck Cohen noted that another approach would be to regulate all elements of
the fiscal and service network depending on the nature and degree of risk sharing.
Sue Navran asked if NAIC risk-based capital (RBC) would address HMO risk
sharing practices.
Chuck Cohen responded that DO1 is currently analyzing RBC for HMOs. The
DO1 must determine which HMOs are not in compliance, what the HMOs would
need to do to become in compliance with RBC standards, and what the effect will
be on rates.
Chuck Cohen pointed out that the Medicare Competitive Pricing Demonstration
also points out the need for RBC standards for HMOs. HCFA is relying on state
financial regulation in the demonstration project.
Chuck Cohen stated that the expected timeframe for enactment of RBC will
probably not be in this legislative session, but hopefully in the next one.
Gary Torticill will get information from the NAIC on the RBC Model.
Chuck Cohen suggested that for purposes of this Group, we need to generally
envision the kind of financial regulation we should have, vis-a-vis provider
networks, so that we can make informed decisions about the resources necessary
to implement. He suggested that the concepts of RBC, and other regulatory
standards that maintain the HMO itself, rather than its service network, as the
regulatory focal point may be the most efficient model.
C. Market Conduct Overview (Erin Klup)
Scope of a Market Conduct Examination for an HMO or indemnity insurer:
" Complaints - Both DO1 and HMO receive complaints, and the market
conduct examination focuses on the areas of complaint.
" Appeal & Grievances - Insurer's process must be in compliance with
Arizona laws.
" Marketing & Sales - Scripts and advertising must not be misleading.
" Producer Licensing - Make sure insurer is paying commissions.
" Filing - All forms and advertising must be filed and approved prior to use.
" Underwriting - Check individual and groups for compliance with HIPAA
Accountable Health Plan laws, Creditable Coverage, Notices, etc.
- HIV laws - Review application questions, consent forms.
- Privacy Act - Check to see if giving proper notices and authorization
for release.
- Conversion.
" Claims - Check for violations of Unfair Claims Settlement Practices Act.
" Utilization Review - Check to see if the insurer has filed a UR plan or if the
insurer is exempt. If the insurer is exempt make sure it has its accreditation by
the proper agency.
" Fraud - Check to see if insurer has reported any fraudulent claims.
Items not formally reviewed in a Market Conduct Examination for an HMO or
indemnity insurer:
" Quality of Care
" Adequacy of Provider Network
" The DO1 lacks jurisdiction, expertise and clear regulatory standards in these
areas.
D. Market Conduct Discussion
Erin Klug stated that DOI's Market Conduct Division has six full-time
employees, and twenty-five contract examiners that are currently providing
examination services.
When DO1 conducts an exam, DHS can join the exam to see if the HMO has an
effective health care delivery system, however, DHS, as of yet, has not
participated in the exams. The standards that an HMO must comply with are
found in the DHS rules regarding quality of care and network adequacy. DO1
cannot examine those areas, it is lacking the expert resources and authority to
conduct exams of that nature.
A question was asked regarding the overall market conduct process and finished
product. Erin Klug responded that the examiners write a report; the report is sent
to the insurer; the insurer has time to respond; the report may be amended; and
generally, a consent order is written. The enforcement of this process is
performed by the Market Conduct Division, the Director's area, and possibly the
Attorney General's Office.
E. Life & Health Division Oversight (Mary Butterfield)
Mary Butterfield handed out an outline of the Life & Health Division Oversight
of Health Care Services Organizations. (See attached.)
a VIII. Next Meeting
Review survey results.
DHS presentation by Don Schmidt.
Meet week of 9/27, or as soon thereafter as survey results are compiled and ready
for review.
Meeting adjourned at approximately 4:40 p.m.
Advisory Group for Regulatory Oversight
of Managed Care Entities
Minutes of the October 7,1999 Meeting
Advisory Group Attendees:
Chuck Cohen, DO1
Vista Brown, DO1
Mary Butterfield, DO1
Scott Greenberg, DO1
Tammi Goldberg, DO1
Don Hughes, Arizona Association of HMOs
Tony Mitten, Maricopa County Medical Society
Mary Ellen Dalton, Health Service Advisory Group
Steve Barclay, CIGNA Health CareMay0 Health Plan
Sue Navran, Blue Cross/Blue Shield
Sheri Farr, AZ Hospital & Healthcare Association
Bob Raddemann, AZ Hospital & Healthcare Association
Scott Smith (for Mike Schaiberger), DOA
Kari Price (for Branch McNeal), AHCCCS
Don Schrnid, DHS
The meeting commenced at 1:35 p.m. a I. Opening Remarks
Chuck Cohen welcomed everyone to the third Advisory Group meeting.
11. Minutes of August 23, 1999 Meetinq
The Advisory Group reviewed and adopted the Minutes of the August 23, 1999
meeting.
111. Materials
The following materials were sent to Advisory Group members prior to this meeting:
Agenda for the October 7, 1999 meeting.
Minutes of the August 23, 1999 meeting.
Spreadsheet of the Managed Care Oversight survey results received thus far.
Blank Managed Care Oversight Survey.
IV. Update on 2000 Le2islature
a Chuck Cohen informed the members that when this Group was initially formed, there
was no definite timeline as to when the Group should submit a completed report.
However, now there are several groups anxiously awaiting a report regarding the
consolidated regulation of managed care entities.
The Group will need to meet a few more times. DO1 is working on a draft proposal.
The objective is to have a final report by mid December.
The Group will need to address issues regarding effective dates, rule making, levels
of funding during the start up phase and the contours of the regulatory program.
Chuck Cohen informed the Group that the Department will be exploring the
feasibility of adopting Risk-Based Capital (RBC) requirements for HMOs in the
upcoming legislative session.
V. Overview of Current DHS Regulatorv Activity (Don Schrnid)
DHS authority is statutorily two fold. First, DHS is given the authority and
responsibility to establish "basic health care services" that an HMO should provide to
ensure enrollees are maintained in good health. In addition, DHS reviews
applications to make sure that the plan is an effective health care plan and must also
approve the geographic service area. The HMO must also submit any changes to the
health plan to DHS for approval.
Second, DHS, in conjunction with DOI, may participate in an examination of an
HMO for purposes of verifying the existence of an effective health care plan and
reviewing the delivery of health and medical services by the HMO.
The DHS rules have not been amended since they were promulgated in 1975.
DHS does not evaluate the HMOs on an ongoing basis, with the exception of a
change in the HMO service area. DHS has no interface with the HMO consumer.
DHS does examine and license medical facilities, but not clinics or physician offices.
The reviews are performed by surveyors with nursing backgrounds.
VI. Discussion of the Manaced Care Oversi5ht survey
Chuck Cohen informed the Group that to date we have received 23 survey responses.
Chuck pointed out that reviewing the spreadsheet of results we can see that many
states have bifurcated systems giving both the DO1 and DHS authority and
responsibilities to oversee managed care. There is a scarcity of models with a unified
system.
There are numerous differences in the states in a variety of areas, making it hard to
draw direct comparisons. However, it can be noted that it is rare to find an insurance
department regulating quality of care and network adequacy.
Sue Navran pointed out that the states probably started out with the NAIC Model Act
and not too many states have changed. In addition, Sue pointed out that it is hard to
compare the states without the corresponding statutory language.
Chuck Cohen informed the Group that we have collected laws from some of the states
and asked for a volunteer to summarize the laws to enable comparison of the different
states. Sue Navran agreed to do the summary.
Out of the 23 states that have responded we will review the laws of 8 states
(Colorado, Oregon, Maine, Maryland, New Jersey, South Carolina, Texas and
Washington), based on similarity of the markets or other salient features of the
regulatory scheme.
Colorado
Colorado is very similar to Arizona in that there is one big metropolitan area and
many rural areas. In addition, the number of managed care entities in Colorado is
similar to Arizona.
Maine
Maine has a smaller number of enrollees in managed care. It is a bifurcated system
with a highly active interagency taskforce. Maine has provided a breakdown of all of
their managed care positions with salary ranges.
Marvland
Maryland also has a bifurcated system with a total budget similar to ADO17s. We
will need to follow up with Maryland to get a breakdown of their budget for managed
care oversight. Maryland has numerous positions dedicated to managed care, and
they have provided a breakdown of these positions.
New Jersey
New Jersey has a similar number of HMOs, with somewhat similar enrollment to
Arizona. New Jersey has a bifurcated system, with DOBI working closely with
DHSS.
Oreeon
Oregon is similar to Arizona in that it has one main city and the number of enrollees
are comparable. We need to follow up with Oregon to get additional information,
such as which areas listed on the survey are the DOI's responsibility and what type of
staff they have to perform this regulation.
South Carolina
South Carolina has a unified system, the Insurance Department is the sole regulator of
managed care entities. We need to get and analyze South Carolina's managed care
laws.
Texas
Texas also has a unified system with close to 8 million enrollees (assuming the
number of enrollees in HMOs and Single Service HMOs are not redundant). Texas
regulates 49 HMOs, and 21 Single Service HMOs with a division consisting of at
least 30 employees.
Washington
Washington operates under a unified system. We should follow up to get a
breakdown of employees dedicated to managed care.
VII. Oven Discussion
Steve Barclay suggested that we use accreditation standards such as NCQA or
JCAHO (and JCAHO could do a presentation for us). These would provide
benchmark standards which are used by employers.
Sue Navran expressed concern that BCBS exceeds the accreditation standards, but it
is not accredited by these organizations. These accreditation standards are a moving
set of standards, and she suggested that we use their standards to create a fixed set of
standards and develop something with less bureaucracy.
Steve Barclay commented that we need to be sensitive to the cost aspect.
Sue Navran suggested that we use a deemed status for companies that are accredited.
Mary Butterfield expressed concern over the definition of "quality of care", whether
we would be monitoring past results or monitoring on an ongoing basis
Sue Navran mentioned that it is very hard to measure quality, each person has a
different perception of what quality means.
Kari Price suggested that DO1 summarize its managed care complaints to see what
needs to be regulated.
A discussion ensued regarding what quality aspects will be regulated. We need to
decide if we are talking about the quality of the HMO and quality of the systems
rather than individual customer service. We should look at other states to see what
they are doing regarding quality of care and utilization review issues. However, the
Group does not want to create a system with additional reporting requirements
without any benefit.
Vista Brown mentioned the DHS quality assurance rule. Vista asked if DO1 should
define "basic health care services". If we merely move the rule to DO1 it will be too
onerous, however, if we leave it to rule making we do not know what we will wind up
with.
Chuck Cohen stated that we need basic quality assurance, we need plan standards
which can be satisfied by outside quality agencies, but do not have to be. We also
need to monitor that compliance and handle the consumers.
Chuck also commented that DO1 does not want to adjudicate contract disputes, but
rather stay on the regulatory side.
Steve Barclay suggested that DO1 conduct examinations to make sure quality
standards are being met. The cost of these exams can be billed back to the HMO and
be performed as often as necessary. If an HMO is doing what it should be doing it
will not have to be examined, and therefore, incur no examination fees of this nature.
Another discussion regarding quality of care ensued. Someone commented that in
order to regulate quality of care, DO1 must go to the providers' offices, just like
NCQA does. This is very expensive and time consuming. Chuck Cohen noted that
the law would probably have to provide for record keeping by Plans on these matters.
The Group discussed how you can really determine quality. You can look at
utilization review and performance measures. We must have some way to look at
quality outcomes of health plans.
Sue Navran pointed out that most consumers change plans because of cost and not
quality. Large groups have access to NCQA reports, but the determining factor for
most groups is cost.
Chuck Cohen raised the issue of a patient advocate or an ombudsman to deal with
quality issues at the consumer level as opposed to quality assurance systems at the
Plan level.
A discussion regarding record keeping ensued. We need records of complaints so
DO1 can look to see what area the complaints fall into. In order to be accredited,
plans must keep a log of complaints.
Sue Navran stated that we should be looking at quality of coverage, not really quality
of care. The plans are not providing the care, but the coverage.
VIII. Recommendations
Chuck Cohen stated that we need a general consensus of the regulatory scheme and
the resources DO1 will need.
We need quality requirements and standards that are applicable to plans, not quality
standards for health care providers.
We need a system where the plans can be deemed accredited if they already have
accreditation or have a DO1 accreditation by established standards.
DO1 needs to monitor ongoing standards through examination along with a record
keeping requirement for the HMOs.
DO1 needs to publish the information it collects on quality of HMOs.
DO1 may need the following kinds of personnel to perfonn effectively in this area:
Quality Manager
Rules Personnel
Contract Examiners
Exam Administrator
Clerical/Support staff
Publication Budget
Consumer Services Personnel
Vista Brown asked if we would need a Medical Director, and the consensus was no, it
was not necessary. However, Sue Navran suggested that we may need a nurse.
Bob Raddemann suggested that we find a new word to use instead of quality.
Chuck Cohen suggested that we have a standard for internal control and suggested
that we say quality assurance instead of quality of care.
A discussion ensued regarding provider networklprovider adequacy
IX. Next Meetins
Review additional survey results.
Review and compare laws from select states.
Meet at the end of October and then again before Thanksgiving.
Meeting adjourned at approximately 4: 15 p.m.
Advisory Group for Regulatory Oversight
of Managed Care Entities
Minutes of the October 25,1999 Meeting
Advisory Group Attendees:
Chuck Cohen, DO1
Vista Brown, DO1
Mary Butterfield, DO1
Scott Greenberg, DO1
Tammi Goldberg, DO1
Sue Navran, Blue CrossBlue Shield
Sheri Coulter, Blue Cross/Blue Shield
Michelle Covel, NFIB
Bob Raddemann, AZ Hospital & Healthcare Association
Mike Schaiberger, DOA
Kari Price (for Branch McNeal), AHCCCS
Don Schmid, DHS
The meeting commenced at 2:25 p.m.
I. Opening. Remarks
Chuck Cohen welcomed everyone to the fifth Advisory Group meeting.
11. Minutes of October 7. 1999 Meeting.
The Advisory Group reviewed and adopted the Minutes of the October 7, 1999
meeting.
111. Materials
The following materials were sent to Advisory Group members prior to this meeting:
Agenda for the October 25, 1999 meeting.
Minutes of the October 7, 1999 meeting.
DOI's 1998 Managed Care Complaints by Reason for Complaint.
Schedule of upcoming meetings.
IV. Action Plan
The Group has two more meetings scheduled for November 18"' and December 16"',
both at 2 p.m.
DO1 is working on a report with recommendations to present to the Governor's
office. A draft of the report will be distributed to the Group prior to the November
lgth meeting so the Group can provide input. At the December 16'~m eeting the
Group will be asked for its final input in order to send the working draft to Senator
Cirillo and Representative Brimhall for their input. Once the report is finalized it will
be presented to the Governor's office.
Chuck Cohen gave a presentation to Senator Cirillo's Senate Select Task Force on
Managed Care Reform regarding the Advisory Group's activity. Chuck explained to
the Task Force the continuum of where managed care regulation can range. Chuck
informed the Task Force that his objective is to propose a baseline division to
implement existing law according to a reasonable and appropriate regulatory
approach and any greater degree of regulation or additional regulatory programs will
cost more money.
V. Discussion of DOI's managed care complaints (Man Butterfield)
Mary Butterfield explained that currently DO1 has limited authority over access and
quality of care issues. Mary described the action DO1 takes in handling the various
types of written complaints.
Kari Price asked if DO1 received many provider complaints. She explained that
AHCCCS receives more provider complaints than member complaints. The provider
complaints may be regarding quality of care, claim denial and reduced payment.
AHCCCS may have more provider complaints than DO1 because DO1 is only a
regulator and AHCCCS is both a regulator and purchaser of health care.
Sue Navran asked if the health care appeals process overlaps with the complaint filing
process. Chuck Cohen responded that the two should not overlap, if a consumer is
going through the appeals process, Consumer Services should not open a complaint
file on the same issue, either contemporaneously or after resolution of the appeal.
Sue Navran commented that a good way to handle quality of care is through an
effective appeals process.
VI. Review of other states' laws
Sue Navran and Sheri Coulter discussed their review of the statutes and rules from
several key states and provided the Group with a summary of their findings.
Sue Navran commented that there did not seem to be a central theme to the states'
laws. Some states' rules contained vague standards such as what is reasonable for the
community or what constituted an adequate number of providers.
Sue Navran commented that the Group should either take the rules DHS has and
provide DO1 with the manpower to enforce them, or give DHS the manpower.
There was a general discussion regarding Florida's laws and how Florida is a highly
regulated state. Florida's Department of Health continually monitors the HMOs by
forcing the HMO to be re-certified every two years.
Provider Contractinp
The Florida law was discussed. The Group commented that it contained extensive
provisions including a gag clause, hold harmless provision, termination provision,
timely payment provision, as well as a provision that allows the DO1 to order
cancellation of a provider contract.
A member of the Group asked if DO1 currently enforces a timely payment provision
in a contract between an HMO and a provider. Chuck Cohen explained that there is a
distinction between an assignment of benefits to a provider in indemnity insurance
(where the provider steps into the insured's shoes), and a business contract between a
provider and an HMO. He explained that DO1 assists consumers with their
contractual rights under their insurance policies, but has no direct regulatory
jurisdiction over many business contracts of insurers.
A general discussion ensued regarding timely payment of providers and what role
should DO1 have in this area. DO1 noted that when it receives a large volume of
provider complaints it may make calls to see what is happening with an HMO. DO1
wants to know if the HMO may be having financial problems or systems problems,
which are within DOI's jurisdiction and responsibility.
A discussion regarding individual provider claims ensued and whether or not quality
assurance plans should have an element to solve individual provider claims. It was
suggested that a statute stating that DO1 will not get involved in adjudicating or
mediating individual disputes be considered.
Oualitv of Care / Network Adequacv
Chuck Cohen stated that one of the things he spoke to Senator Cirillo's Task Force
about was the need for a balance between the regulatory role (government control)
and the purchaser role (market control).
Sue Navran pointed out that the public looks to the provider directory in determining
the adequacy of the network and employers look internally to see if their employees
are satisfied, rather than looking at NCQA or HEDIS reports. She commented that
NCQA and HEDIS reports could be available upon request or on a web site.
Cavitation and Risk Shiftinp
There was a general discussion of the various payment arrangements entered into
between HMOs, providers and fiscal intermediaries.
A discussion ensued regarding fiscal intermediaries in Arizona that have entered
bankruptcy. Currently, there is no real insurance regulatory role to monitor fiscal
intermediaries. The Group discussed whether there should be standards such as
bonding and financial reporting or at a minimum regular reporting to the HMO with
whom they have contracted.
Chuck Cohen pointed out that DOI's main concern in dealing with failed fiscal
intermediaries in the past has been continuity of care for the members.
Kari Price pointed out that AHCCCS requires the plan to regulate the intermediary.
If a health plan is contracting out claims payment, AHCCCS requires quarterly
monitoring. If a fiscal intermediary is having solvency problems, AHCCCS does not
terminate the fiscal intermediary relationship; the plan must terminate this
relationship. When contracting with a fiscal intermediary, the plan becomes liable
and may have to pay twice if the intermediary fails to pay.
Chuck Cohen noted that there is no legal definition of "capitation" and that a
definition could be considered where capitation would be permitted only to those
actually providing a service. Those not providing a service, but accepting risk, would
be considered insurers and would then be required to obtain a license from DOI.
Chuck Cohen pointed out that Ohio regulates risk bearing on the degree of risk
shifting. However, Chuck pointed out that this is apparently an unfunded law.
Chuck Cohen pointed out that when an insurance company goes bankrupt, DO1 steps
in to liquidate the company while looking out for the consumers. Whereas, when a a fiscal intermediary goes bankrupt, it goes to federal bankruptcy court.
-
IX. Next Meetin5
At the next meeting, the Group will discuss the timeframe for implementation and the
level of medical and information system expertise DO1 will need.
Scheduled for November 1 8th at 2 p.m.
Meeting adjourned at approximately 4:00 p.m.
Advisory Group for Regulatory Oversight
of Managed Care Entities
Minutes of the November 18,1999 Meeting
Advisow Group Attendees:
Chuck Cohen, DO1
Vista Brown, DO1
Mary Butterfield, DO1
Scott Greenberg, DO1
Tarnrni Goldberg, DO1
Don Hughes, Arizona Association of HMOs
Don Schrnid, DHS
Tony Mitten, Maricopa County Medical Society
Steve Barclay, CIGNAMayo
Sue Navran, Blue Cross/Blue Shield
Debbie Nixon, Health Services Advisory Group
Bob Raddemann, AZ Hospital & Healthcare Association
Kari Price, AHCCCS
Michelle Covel, NFIB
The meeting commenced at 2: 10 p.m.
I. Opening Remarks
Chuck Cohen welcomed everyone to the fifth Advisory Group meeting.
11. Minutes of October 25, 1999 Meeting
The Advisory Group reviewed and adopted the Minutes of the October 25, 1999
meeting.
111. Materials
The following materials were sent to Advisory Group members prior to this meeting:
Agenda for the November 18, 1999 meeting.
Minutes of the October 25, 1999 meeting.
First Draft Managed Care Oversight Report.
IV. Action Plan
DO1 has been working on a draft report with recommendations to present to the
Governor's office. DO1 plans on finalizing the draft after today's meeting, and
delivering the draft in early December to Senator Cirillo and Representative Brimhall a for comment. Chuck Cohen will eventually go before Senator Cirillo's Task Force
and explain the budgetary projection, as Senator Cirillo is waiting for the budget
numbers to put in his Bill.
The final report will likely be presented to the Governor's office in December, before
the holidays.
V. Review Draft Report
Chuck Cohen explained that the draft sets out the background of managed care
regulation in Arizona, the meetings of the Advisory Group and the data the Group
examined and discussed (including the survey, survey results, and other states' laws).
Assumptions
The Overview and Scope section of the draft begins by laying out the assumptions
upon which the resource projection was compiled.
The first assumption establishes that it is not the objective of this projection to make
new policy, but full and appropriate implementation of existing law and policy.
Another general assumption is that dental "service corporations" and prepaid dental
plans will not fall under the consolidated regulation of managed care entities.
Chuck Cohen explained that right now if DHS was struck from the rule, dental would
not be included in the oversight. The law would have to be changed to include dental
and currently, DHS has an active program regulating the dental organizations.
Chuck Cohen explained that DO1 will continue to function as a regulator of plans, not
as an adjudicator of claims.
Ouality
Chuck Cohen explained that DO1 will be taking over responsibility for the DHS rules,
including whether a health care plan provides for basic health care services and
whether a managed care organization constitutes an effective mechanism to achieve
an effective health care plan. DO1 will look at the systems, policies and procedures
related to health care delivery.
Outside resources, such as examiners, will be used by DO1 with respect to oversight
of an organization's quality system. Due to the fact that many organizations submit
to quality review by private organizations, DO1 will use a "deemed" compliance
provision.
DO1 will provide the same kind and level of assistance to individual consumer
complaints as it does for other lines of insurance. In addition, DO1 will provide
consumer-oriented information and publications, promote self-help, and facilitate, not
adjudicate, resolutions of disputes.
Provider Contracting
DO1 assumes that consolidation of managed care oversight will not create a new
responsibility for enforcement of plan-provider contracts. DO1 will continue to be
involved in reviewing the way a plan deals with contracting issues such as grievance
and appeals of provider complaints. DO1 will monitor the number of grievances
filed, financial issues, and network problems.
Risk Sharing
DO1 will continue to regulate the plans' capital and surplus. However, it will be the
plans' responsibility to impose requirements when transferring risk, such as bonding
and reporting requirements.
Open Discussion
Steve Barclay asked if the Department will need to promulgate rule standards if no
legislation is passed regarding managed care? Chuck Cohen responded that the
managed care legislation will be considered in 2000, therefore, DO1 should not need
to create new rules consolidating managed care regulation, the legislation should
transfer the appropriate responsibility to DOI.
A discussion ensued regarding the definition of fiscal intermediaries.
Steve Barclay asked what will happen with accredited entities, will they need to be
re-qualified or will they be "deemed" qualified through an examination process.
Mary Butterfield responded that this process will be similar to the UR accreditation,
wherein, if an entity is accredited by a private organization, they are "deemed"
accredited by DOI. However, problems arise when entities are accredited for specific
things but their UR activities go beyond that scope. Accreditation must be sufficient
to have a "deemed" status.
Sue Navran expressed concern regarding the fact that Blue Cross Blue Shield is not
accredited, but has been licensed for some time and they do not want to go through
the licensing process again.
Personnel and Budget
Chuck Cohen explained that we are not proposing the creation of a Managed Care
Division, but an allocation of additional resources to existing Divisions to carry out
managed care oversight.
Chuck Cohen explained that in the Life and Health Division we projected the need for
four new positions, a QualityICompliance Manager and two QualityICompliance
Analysts, all with medical backgrounds, and an Administrative Assistant 111. In
addition, the Life and Health Assistant Director's position will be uncovered and
reclassified.
One new Consumer Services Specialist I1 will be necessary in the Consumer Services
Division. One Senior Financial Analyst will be added to the Corporate and Financial
Affairs Division, as well as reclassifying and uncovering the Assistant Director's
position.
The Office of the Director will need a RuleILegal Analyst, in addition to reclassifying
an Administrative Secretary I to an Administrative Assistant 11.
Chuck Cohen explained that as the Department adds employees, other Divisions are
impacted, such as Administrative Services and Information Technology. These
Divisions get more stressed with new programs. Therefore, it is necessary to
reclassify an Administrative Assistant I1 in the Administrative Services Division to an
Administrative Assistant 111, and reclassify a Network Specialist I in the Information
Technology Division to a Network Specialist 11.
In addition, Chuck Cohen explained that DO1 wants to be able to hire qualified
people and retain these people. Chuck does not want to ask for twice as many
positions than are necessary with the idea of getting fifty percent. He would rather
take credible numbers to the Governor.
Debbie Nixon asked if we would have any problems reclassifying positions? Scott
Greenberg responded that we should not have problems if we provide adequate
backup information.
Sue Navran asked if DO1 was planning for other legislative changes? Chuck Cohen
replied, that we did not plan for it in this proposal. The consolidation of managed
care regulation was a charge given by the Governor, not the Legislature. Scott
Greenberg added that at the appropriate time, DO1 will bring up other resource issues
in other proposed Bills.
Sue Navran asked who will answer consumer calls? Chuck Cohen responded that the
Consumer Services Specialist will answer these calls, and the Quality Analysts may
also help out with consumer questions.
VI. Timetable
Chuck Cohen explained that if the consolidation is enacted in the next legislative
session, it could be effective on January 1,2001.
Vista Brown explained that the rulemaking would also be effective on January 1,
2001. We will need a provision to protect the current rules or a one year exemption
to instantly adopt them, while going through the regular rule making process. Vista
explained the rule making process to the Group.
A group member asked how the consolidation of managed care regulation will effect
the 2001 budget, since it will be enacted in mid year. Don Hughes added that Senator
Gnant has already asked agencies for supplementary appropriation requests. Chuck
Cohen replied that this is not the Department's request, it will be part of Senator
Cirillo s Bill.
A discussion ensued regarding when the Department would receive the money.
Chuck Cohen explained that it will take at least three to four months to establish and
fill the new positions.
Bob Raddemann asked why there was no training or education expense in the
proposal. Scott Greenberg replied that DO1 did not consider training and education in
this projection, however, it will consider this expense in the final projection.
Debbie Nixon asked why there was no instate travel in the projection. Chuck Cohen
responded that the Department will use examiners to conduct onsite field
examinations. These examiners are procured contractors whose expenses are billed to
the appropriate plan.
Sue Navran asked if the Quality/Compliance Analysts will be nurses. Mary
Butterfield replied that we will use RNs to fill these positions.
Sue Navran commented that the projection seems a little light in the Consumer
Services area. Chuck Cohen responded that given the data on the number of
consumer complaints, this seems to be an adequate projection for the first year,
although, we may need to adjust employment projections in the second year.
VII. Sources of Funding
Chuck Cohen pointed out that in funding Insurance Departments, some states use
assessments and others use a general fund, or some hybrid of the two. Given the fact
that we have twelve plans and a projected cost of at least $750,000 for the first year,
this proposal will be presented as a general fund appropriation.
Scott Greenberg commented that DO17s fee schedule will have to be uniformly
adjusted.
Kari Price asked what the fees are? Scott Greenberg responded that some of D017s
fees are agent licensing, certificate of authority, brokers licensing, filing charter
documents and filing annual statements, among others. Scott pointed out that these
fees have not changed in five years. It was noted that the fee issue must be explained
in the Report.
VIII. Information Systems a Chuck Cohen asked the Group if we will need IS people who understand the plans'
systems? Kari Price replied that at AHCCCS they do not, with the exception of the
Y2K compliance.
Scott Greenberg asked what type of information we will be receiving from the plans.
Sue Navran responded that the plans would have the information on their websites
and on paper, if need be.
Mary Butterfield asked the Group if providers and plans send things electronically?
Sue Navran replied that some send claims information electronically. Steve Barclay
commented that electronic filing would be a cooperative adventure between the plans
and DOI. Scott Greenberg commented that with only 12 plans, it would not be that
difficult to develop.
IX. Next Meeting,
Chuck Cohen asked the Group if they felt we needed one more meeting? The Group
did not believe another meeting was necessary.
Chuck Cohen informed the Group that every member will receive a final draft of the
Report delivered to the Governor's office.
Meeting adjourned at approximately 3:40 p.m.
EXHIBIT 5
Contents
1. A.R.S. 520-821 et seq.
2. A.R.S. 920-1 05 1 et seq.
3. A.A.C.R9-12-101etseq.
other persons, but inciuhg the reasonabie cost of the liqui-dation.
1955
20-792. Ownership of real property
L*gd title of real propexy acquired as an e!igible invest-ment
in accordance with section 20-556 must be held in the
name of the reciprocal insurer. Notwithstanding any other
provision in this secdon, all deeds, notes. xorcgages or other
documents relating to the purchase, sale. lease. enc,~mbranco
or other interest in such real propem may be executed in the
nzme ofthe reciprocai insurer by its attorney-in-fact. 199;
ARTICLE 3. HOSPIT&L, MEDIC& D m-iUi
OPTOMETRIC SERVICE CORPOR4TIONS
20-821. Scope of article; rules; authority of direcror
See Laws 1997, Ch. 100, 2 for applicsbilit:: guidelines
A. Hospital serVice corporations, medical sercice corpora-tions,
dencal serVice corporations, optometric semice corpora-tions
and hospital, medical, dental and optometric service
corporations incorporated in this state are governed by this
arricie and are exempt from all other provisions of this tide,
except as expressly provided by this a ~ i c l ea nd any rule
adopted by the director pursuant to secrion "-143 relating to
contracts of such serc-ice corporations. So insurance law
enacted after January 1. 1955 is deemed to apply to such
corporations unless they are specEcally referred to therein.
B. Sections 20-1133, 20-1355, 20-1408, 20-1692, 20-
16S2.01, 20-1692.02 and 20-1692.03 and chapter 17 of this
title apply to this anic!e. 1997
20-822. Definitions
In this article. unless the context othe-rriiie reauires:
1. "Department" meax the department of insurance.
2. "Director" means the ciirector ofthe department oiksur-'
ance.
3. TiospitaI service conorations", 'medical service corpora-tions",
'dental service corporations", 'opmmetric service cor-porations"
and "hospital, medical, dental znd optometric ser-vice
corpqrations" mean corporations organized under the
laws of this state for the purpose of establishing, maintaining,
and operating nonprofit hospital se-mice or medical or dental
or optometrk serrice plans, or a combinarion of such plans,
whereby hospital, medical or dental or optometric sertice may
be provided by hospitals, which within the meaning of this
anicle may include extended care facilities and home health
agencies, or by physicians, which within the meaning of this
article may include professional and techiical personnel un-der
the direction of a physician, or by podiatrists, or by
dentists which may include those engaged in the general
practice of dentistry as xell as the specialized or restricted
practice of dentistry, or by optometrists m-hich may include
those engaged in the general practice of optometry as well as
the specialized or restricted practice of optometry, wich which
the corporations have contracted for such pcrpose, to such of
the public as become subscribers to the corporations under
contracts which enticle each subscriber to certain hospital,
medical, dent& or optometric semice, or in the case of hospital
service corporations or medical senice corporations, all such
services, or whereby as operacing expense or refunds, pay-ments
may be made to subscriber; with respect to any such
service that is rendered by a hospital, physician, podiatrist,
dentist or optometrist with which the corporations have not so
contracted. 1975
20-823. Incorporation of hospital, medicd, dental and a optometric service corporations
The corporation as defined in 3 20-822 shall be organized
under the laws of this state relating to private corporations
not for pecuniary profit. in sofa^ as snch laws are noc inconsis-tent
mth any ofthe proilsions ofths article. 19% --
20-334. Application for certiiicate; fee
terms under which service is to be hmjshed to subscribers.
4. Proposed contracts to be issueho subscribers.
5. -4 table of rates to be charged to subscr;,bers.
each contributor and the terns of each contribution.
poses to operate.
penses.
5. The applicant has secured contracts of participation from
sufiicient hospitals, p h y s i ~ i ~dse,n tists or optometrisis or
my combination thereof to p r o d e ample protection for its
subscribers within the area propcsed to be sened by the
applicant.
20-826. Subscription contracts
Lci~rs2 998, Ch. 91, 5 8 applies to policies, contracts and . . '
plans isszed or reneujed on or aper Jan. 1, 1999
pAaTICXjLXTZ TYPES OF INSURERS
1. Performance of any surgical serrice w7Gch is covered by
he te-ms of such coni;mc:. regardless of the piace of service.
2. b y home hedth sersices which are performed by a
health ag-enc:I and wiuch a phys~c:= has
lieu of hospical services. as defined by the
r. providing the hospicai services would have been
covered.
3. Any diapostic service which a physician has performed
,,utside a hospical in lieu of inpatient service, providing the
inpatient sersice would have been covered.
4, Any servic2 performed in a hospital's outpaclenc depart-ment
or in a freestanding s u r ~ c a lfa ciiicy, if such service
wouid have been covered ifpedormed as a inpatlent service.
D. Each contracc for dental or opcometric serJices shall be
so written that the corporacion shall pay benefits for con-tracted
dental or optomecric sekces provided by denciscs or
opcomecrists.
E. Any conmact, excot accidental death and dismember-ment.
applied for thac provides family coverage shall, as to
such coverage of family members. also provide that the bene-firs
applicable for children shall be payable wich respect to a
newly born c:hild of the insured &om the instant of such child's
birth, to a c:dd adopced by the insured, regardless of the age
at which the child was adopted. and to a child who has been
placed for adoption wick the insured and for whom the
application and approval procedures for adopcion pursuant to
secdon 8-105 or 8-108 have been completed to the same extenc
that such coverage applies to other members of the family. The
coverage for newly born or adopted children or children placed
for adoption shall include coverage of injury or sickness
including necessary care and treatment of medically diag-nosed
congenital defeccs and birth abnomalicies. If payment
of a specific premium is reqGed to provide coverage for a
child, the contract may require that noniication of binh.
#:@ ouni roerd apdroemptiiuonm pmlaucsetm been ftu ronf isthheed c htoil dth ea ninds puareyrm weincth ionf
t ,-o ne days after the date of birch. adoption or adopcion
placement in order to have the coverage continue beyond the
thirty-one day period.
5'. Each contract which is delivered or issued for delivery in
this state more than one hundred twenty days after August
'&, 1977 and which provides that coverage of a dependent
&Id shall termhate upon attainment of the limicing age for
dependent children specified the contract shall also provide
in substance that attainment of such limicing age shall noc
operate to terminate the coverage of such chiId while the child
is and continues to be both incapable of self-sustaining em-ployment
by reason of mental retardation or physical handi-cap
m-d chiefly dependent upon the subscriber for support and
maintenance. Proof of such inczpacity and dependency shall
be furnished to the corporation by the subscriber within
thirty-one days of the child's attainment of the Limiting age
and subsequently as may be required by the corporation, but
not more frequently than annually after the two-year period
following the child's attainment of the limiting age.
G. NO corporation may cancel or refuse to renew any
subscriber's contract without ~ v i n gno dce of such cancella-tion
or nonrenewal to the subscriber under such contracz. A
notice by the corporation to the subscriber of canctt!lation or
nOnreney;c-al of a subccripcion contract shall be mai!ed to the
named subscriber ac least forty-five days prior to the efective
date of such cancellation or nonrenewal. Such notice sha!l
include or be accompanied by a statement in writing of the
reasons for such action by the corporation. Failure of the
C3Qoration to comply wich the provisions of this subsection
invalidate any cancellation or nonrenewal except a
lation or nonrenewal for nonpayment of premium.
A contract which provides coverage for surgical services
for a mastectomy shall also coverage incidental to the
patient's covered mastectomy for surgcd sernces for breasc
reconstrucdon. and for ac least two ex?.rnal poscoperrtnve
prostheses subject to ail of the terms and conucions of the
policy.
I. A contract which provldes coverage for surgcal se--vices
for a mastectomy shall also provide coverage for mammogra-phy
screening performed on dedicaced equipment for &a-90s-tic
purposes on refeyal by a patienc's ph:rsicia. subjecc to all
of the terms and conditions of che poliqr and according to the
foilowing ,hde!ines:
1. A baseline mammogram for a woman from age thir,:;-Sve
to thirty-nine.
2. A mammogram for a woman from age for,:i to fop-nine
ever- two years or more frequencly b ~ e odn the recommen-dation
of the woman's physician.
3. A mammogram every year for a woman fiF?; years of age
and over.
J. h v contract that is issued to Lie insured and thac
provides coverage for maternity benefcs shall also provide
that the maternity benefits apply to the coscs of the binh of
any clhild legally adopced by the insure", all of ~ 5feol lowing
are true:
1. The child is adopced within one year of bkh.
2. The insured is legally obligated to pay the costs of birth.
3. All preexisting condicions and ocher E t a t i o n s have
been met by the insured.
4. The insured has notified the insWer of his accepcabili~
to adopt children pursuant to section 9-105, within sic? days
after such approval or within sixty days after a change in
insurance policies, plans or companies.
K The coverage prescribed by subsecion J of this seczion is
excess to any other coverage the natural mother may have for
mate-raity benefits except coverage made available to persons
pursuant to tide 36, chapter 29 but not including coverage
made available to persons defined as eligible under secxion
36-2901, paragraph 4, subdivisions (dl. (el, (D and (g). If such
other coverage exists the agency, arLorney or individual ar-r
a n ~ n gth e adoption shall make arrulgemencs for the insur-ance
to pay those costs that may be covered under thac policy
and shall advise the adopting parenc in wrichg of the exist-ence
and extent of the coverage without disclosing any confi-dentid
information such as the identic of the natural pzrent.
The insured adopting parents shall nor> their insurer of the
'e -Ls7t'e Tnhcee danirde cetoxrt emnta yof dtihsaep opcrhoevre caonvye rcaggen.t rac~if the benefirs
piovided in the form of such contracz are unreasonable in
relation to the premium charged.
31. The director shall adopt emergency d e s applicable to
persons who are leaving active serrice in the armed forces of
the Uniced States and returning to cibilian status, inc!uding:
1. Conditions of elig3oility.
2. Coverage of dependents.
3. Preexisting conditions.
4. Te-mination of insurance.
5. Probationary periods.
6. Limitations.
7. Exceptions.
6. Reductions.
9. Elimination periods.
10. Requireaencs for replacement. .
11. Any other condition of subscription contracts.
N. Beginning on January 1, 199E, any contract that pro-vides
maternity benefits shall not restrict benefits for any
hospital length of sray in connection with childbirth for the
mother or the newborn child to less than fort{-eight hours
following a normal vaginal delivery or ninety-six hours follow-ing
a cesarean section. The contrac: shall not require the
provider to obtain authorization from the corporation for
prescribing the minimum lengh of stay required by this .
20-527 INSURkVCE
subsection. The contract may provide that an attending pro- in relation to benefits for equipment or supplies for the
vider in consuitation with the mother may discharge the treatment of diabezes.
mother or the newborn child before the expiration of the R. -4.s used in subsection E of &is section. the te-rn "cllild*,
minimum length of stay required by this subsec~ion. The for puiposes of initial coverage of ul adopted chiid or a c u d
corporation shall not: placed for adoption but not for purposes of termination of
1. Deny the mother or the newborn chiid eiigibiiity or coverage of such child, mems a person under the age
continued e!i@bility to enroll or to renew coverage under the eighteen years.
terms of the contract solely for the purpose of avoiding the 20-837. Participating hospitals, physicians, dentists,
requirements of this subsection. optometrists, pspc'nologists and chiroprac.
2. Provide monetay payments or rebates to mothers to tors
encourage those mothers to accept less than the minimum
protections available pursuant to this subsection. See Laws 1997, Ch. 100, $ f for opplicabi!it~g uide!ines
3. Penalize or otherwise reduce or limit the reimbursement
subsection.
under the contract in a manner that is inconsistent with this ners. ps).chologists and chiropractors duly licensed and quai-subsection.
ified to practice in this state: and may enter into contracts of
5. Except as described in subsection 0 of this section. panicipation nith any hospi~alm ainzained and operated by
restrict benefi~s for any portion of a period within the mini- the state or any political subiivision thereof.
mum length of stay in s manner that is less favorable than the B. KO person subject to this article may restrict, or prohibir,
benefits provided for any preceding portion of that stay.
0. Nothing in subsection ?oif this section:
child. care r i s h or benefirs.
210-838. Deposit for protection of members
P. Any contract that provides coverage for diabetes shall two per cent of the goss subscriptions coliected d ~ hthge
also provide coverage for equipment and supplies that are preceding calendar year, until the deposit of the corporation
medically necessary and that u e prescribed by a health care reaches a total of five hunthd thousand dollars. All SW!
provider, including: deposits shall be held by the state treasurer in trust for the
I. Blood glucose monirors. benefit and protection of the subscrik~ers of the corpora5011
2. Blood glucose monitors for the legally blind. making the deposit.
D. .&I unsettled final jud-gnent, arising upon a cekficate of
8. Insulin cartridges for the legally blind. participation against such a corporation, shall be a lien on the
9. Syringes and lancets including automatic lancing de- deposit prescribed b~ this section, subject to &r
vices.
medicare. the time such proceedings were commenced.
P:*TICUL.AR Tk-PES OF INSVRERS
1. Administrators or trustees of hospitals which have con-trj.
cted with the corporacion to render hospitd servlce to
agubsrcrimbpeicras1,i f a cnhde mcoerdpiocraal tisoenrv iisc ea choorsppoicraatli soenr. rice corporation
ysicians and surgeons licensed to praczice in this stace
have contracted with the corporation to render medical
service to subscribers. if the corporacion is a medical serrice
rnrporation or a hospital and medical serVice coqoration.
3. Dentists licensed to practice in this stace who have
rnntracted with the corporation to render dentd service to
Subscribers, if the corporation is a dental service corporation.
4. Optometrists Licensed to practice in this stace who have
contracted with the corporation to render optometric service to
ifthe corporation is an optometric se,?rice corpo-ation.
5. T i e g ~ n e r dpu blic, exclusive of hospital representatives
and physicians, dentists and optometrists. 1975
20-830. Expenses and investments
A. The operating and administrative expenses of any such
corporation, including all costs in connection with soiicitation
of subscribers to the corporation and capital e.qenditures,
shall not exceed thirty per cent of paid subscriptions during
the first year of operation, tiventy-five per cent of paid sub-scriptions
during the second ye- of operation, and hventy per
c a t of paid subscriptions in any year theredier.
B. All h d s not set aside for operating ex;ienses shall be
placed in a resene that may be expended only for payment to
participating hospitals, physicians, dentists, optometrists,
certified registered nurses, registered nurse practitioners,
psychologists and chiropractors for services to subsci'iers, for
payment to subscribers for coverage on presczipcion dru3
wherl provision is so made in subscription contracts, or a
refund to t5e subscribers. The funds of the c o ~ o r s t i o nsh all be
d as prescribed by artic!e 2, chapter 3 of this title for
ic insurers. 19%
20-531. Annual reporr and examination
A. Not later than March 31 of each year ever; such corpo-ration
shall file with the direczor a statement veriiied by at
j e s t b o of its principd oEcers showing its conucion on the
day of the next preceding calendar year. The c5rec:or may
appoint an examiner. deputy examiner or ocher person to
examine into the afiairs of the corporation who has the povr-er
of visitation and examination, is entitled to free access to d l
the book, papers and documents re!ating to the business of
the corporation and may summon the oEcers. agents or
employees or any other persons and require them to testifi
under oath concerning the z f a i r s , transactions ard condition
of the corporation. An examination shall be conduc~ed at least
every three years.
B. The corporation shall pay the cost of the examination
and audit, but the corporation is not required to pay for more
than one such audi