BILL ANALYSIS C.S.H.B. 1194 By: Berlanga 04-27-95 Committee Report (Substituted) BACKGROUND Dental provider organization plans are generally described as plans which offer to their members the availability of dental services at discounted rates. The plans establish a network of participating dentists who agree to provide dental services to plan members at certain discounted rates. The plans sell memberships on a group and/or individual basis, in return for a fee. The membership fee entitles the member to seek dental care services from participating dentists at discounted rates. The earliest dental provider plans in Texas appeared approximately 1984. The type of dental plan to be regulated under this legislation was formerly designated as a "referral plan." The terminology has been changed in the legislation, however, to distinguish these dental provider organization type plans from the traditional referral service under which a prospective patient would call the service and be "referred" to a participating dentist. In most of the dental provider plans, the patient is not referred to any particular dentist; rather, the patient is free to choose to receive dental services from any of the plan's participating dentists. A true dental provider plan offers no prepayment to the participating dentists, nor does it offer indemnification against or reimbursement for the cost of the dental care services ultimately rendered; therefore, dental provider plans do not constitute "insurance" as that term has traditionally been defined. This was confirmed by Attorney General Jim Mattox in opinion No. JM-1167, issued in April of 1990. Dental plan consumers often do not understand the distinction between dental provider plans, health maintenance organizations offering dental care, and traditional dental insurance coverage. The responsible dental provider organizations operators recognize the need for effective, efficient licensing and regulation, to preserve this distinction, to prohibit misleading the public, and to protect dental plan consumers in Texas. PURPOSE As substituted, House Bill 1194 would create a system of regulation of dental provider organizations and dental provider plans in a manner that assures they can perform on their obligations to the public and that they are prohibited from engaging in misrepresentation in the marketplace, while at the same time recognizing and enhancing the distinction between dental provider organizations and dental provider plans and dental health maintenance organizations. RULEMAKING AUTHORITY It is the committee's opinion that this bill does grant additional rulemaking authority to the insurance commissioner under SECTION 1 of the bill by adding Article 21.53C, Sec. 14, Insurance Code, which permits the commissioner to adopt reasonable rules as necessary and proper to implement this article. SECTION BY SECTION ANALYSIS SECTION 1. The legislation adds a new Article 21.53C to the Texas Insurance Code. Sec. 1: Short Title. Entitles the act as the Texas Dental Provider Organization Act. Sec. 2: Definitions. Outlines the definitions to be used throughout the Act. Sec. 3: Requirement of Certificate of Authority. (a) This section authorizes any person to seek to obtain a certificate of authority from the Commissioner of the Texas Department of Insurance, to establish and operate a dental provider organization. (b) This section prohibits persons from establishing, operating or marketing a dental provider plan in this state without first obtaining a certificate of authority. (c) Allows foreign corporations to apply for a certificate of authority. Sec. 4: Initial Certificate. (a) This section outlines the contents of an application for certificate of authority to be filed. (b) Requires the Commissioner of Insurance to review an application, notify the applicant of any deficiencies, and allow the applicant 60 days to correct deficiencies. The section also requires the commissioner to delay final action on the application to allow the applicant an opportunity to correct any deficiencies. (c) Requires the Commissioner to issue or deny a certificate of authority no later than 60 days after the application for certificate of authority is filed, unless final action is delayed to allow the applicant to correct deficiencies in the application. (d) States the grounds on which the Commissioner is required to issue a certificate of authority. (e) States the criteria which may be used by the Commissioner in making the decision on issuance or denial of a certificate of authority. (f) States the basis on which the Commissioner may deny the granting of a certificate of authority. Sec. 5: Renewal. (a) States that a certificate of authority expires annually on April 1. (b) States the requirements for renewal of a certificate of authority. (c) States that modifications and amendments to information included in an application for certificate of authority is deemed approved unless the Commissioner specifically disapproves the change within thirty (30) days of its receipt. (d) Provides that a dental provider organization may continue operating while its timely-filed application for renewal is pending. (e) Provides that Sections 4(c)-(f) apply to an application for renewal. Sec. 6: Annual Report. (a) Requires each dental provider organization to file with the Commissioner an annual report with its application for renewal of its certificate of authority. (b) Specifies that the annual report shall include an audited balance sheet, statement of income and retained earnings, and statement of cash flows. Sec. 7: Notification of Change. Requires that any change of control or ownership of the dental provider organization be subject to prior approval by the Commissioner. Sec. 8: Powers of Dental Provider Organization and Plan. (a) Specifies the several powers of a dental provider organization and dental provider plan. (b) Allows a dental provider organization to contract with a person to perform marketing, enrollment, and administration services. Provides that any management company or administrator of a dental provider plan is not an "Administrator" subject to Article 21.07-6 of the Texas Insurance Code. (c) Allows a dental provider organization all powers given to a corporation, partnership, or association under the entity's organizational documents that do not conflict with this Act. Sec. 9: Schedule of Dental Care Service Fees and List of Participating Dentists. (a) Provides that each member of a dental provider plan shall receive a schedule of dental care service fees, outlining the services available from the participating dentists, and the applicable fees. Further provides that each member shall receive a list of the participating dentists in such member's geographic or metropolitan area. (b) Prohibits unjust, unfair, inequitable, misleading or deceptive provisions in the schedule of dental care service fees. (c) Provides minimum standards for the schedule of dental care service fees. (d) Provides for the right of a dental provider organization to file with the Commissioner and use a schedule of dental care service fees. Prohibits the use of any form of dental care service fees if disapproved by the Commissioner. (e) Authorizes the Commissioner to disapprove any filed schedule of dental care service fees. Provides for the right of a dental provider organization to appeal the disapproval of a schedule of dental care service fees. (f) Allows the Commissioner to require the dental provider organization to issue a corrected schedule of dental care service fees to replace any schedule previously issued and subsequently disapproved. Provides that the use of a schedule of dental care service fees that is subsequently disapproved cannot be used as a basis for disciplinary action against the dental provider organization, unless the schedule lacks the minimum requirements under Sec. 9 (c). (g) Authorizes the Commissioner to require additional relevant information deemed necessary in considering a schedule of dental care service fees. Sec. 10: Complaint Resolution Procedure. (a) Requires that every dental provider organization establish and maintain a system of complaint resolution. (b) Allows the Commissioner to examine a dental provider organization's complaint resolution system and recommend improvements. Sec. 11: Protection Against Insolvency. (a) Requires each dental provider organization to maintain a minimum surplus of $100,000.00, valued according to generally accepted accounting principles. (b) Allows the Commissioner to take appropriate action regarding an organization which fails to maintain such minimum surplus. (c) Requires each dental provider organization to post a surety bond in the amount of $100,000.00 with the Texas State Treasury. (d) Allows the commissioner to suspend, revoke, or refuse to renew a certificate of authority for failure to comply with these requirements. Sec. 12: Prohibited Practices; Marketing and Advertising. (a) Prohibits the use by a dental provider organization of false or misleading advertising, solicitation, or forms. (b) Provides that Texas Insurance Code Art. 21.21 and the Texas Deceptive Trade Practices- Consumer Protection Act (Texas Business and Commerce Code §17.41, et. seq.) is applicable to the sale of dental provider plans, and to the operation of a dental provider organization. (c) Prohibits a marketing representative of a dental provider organization from using marketing or advertising materials regarding the dental provider organization or dental provider plan unless such materials have been approved by the dental provider organization. Requires that marketing representatives are subject to the provisions of this Article. Requires disclosures in the marketing and advertising materials that the dental provider plan is not dental insurance or a health maintenance organization contract, and that the organization does not reimburse the dentists or indemnify its members for the cost of dental care services received by members. Sec. 13: Suspension, Revocation or Non-Renewal of Certificate of Authority. (a) Authorizes the Commissioner to suspend or revoke any dental provider organization's certificate of authority, and specifies the grounds for taking such action. (b) Prohibits advertising, solicitation, or enrollment of new members by a dental provider organization whose certificate of authority is under suspension. (c) Requires the immediate winding up of affairs by a dental provider organization whose certificate of authority has been revoked or has not been renewed. (d) Permits further operation of an organization by order of the Commissioner. Sec. 14: Rules and Regulations. Confers rule-making authority upon the Texas Department of Insurance in order to carry out the provisions of the Act. Sec. 15: Appeals. Provides for the appeal of any rule, ruling or decision of the Commissioner of Insurance, as outlined under Article 1.04 of the Texas Insurance Code. Sec. 16: Statutory Construction in Relation to Other Laws. (a) Provides that solicitation of members by a dental provider organization shall not be construed to violate any prohibition against dentists' solicitation or advertising. (b) States that the Act does not permit or allow the practice of dentistry by a dental provider organization. (c) States that factually accurate information regarding dental provider does not constitute a violation of any laws prohibiting dentists' solicitation or advertising. (d) Exempts dental provider organizations from the provisions of insurance laws, unless they are specifically made applicable. (e) States that a dental provider organization holding a valid certificate of authority is a "qualified carrier" under the Texas Insurance Code Art. 3.50-2. (f) States that a dental provider plan is not a health insurance policy or an employee benefit plan for purposes of the Texas Insurance Code. (g) States that dental provider organizations are subject to Section 7, Article 1.10, and Article 1.10A of the Texas Insurance Code. Sec. 17: Public Record. Makes all applications, filings and reports required of dental provider organizations under the Act public documents, except for examination reports of the Texas Department of Insurance. Sec. 18: Injunctions. Authorizes the Commissioner to bring suit in district court to enjoin any violations of the Act. Sec. 19: Fees. (a) Limits allowable fees required under the Act to $4,000.00 for filing an initial application for certificate of authority, and $3,000.00 for an application for renewal of a certificate of authority, and certain other fees. (b) Permits the Texas Department of Insurance to prescribe the fees to be charged, subject to the limits as outlined above. (c) Requires that the fees collected to be deposited with the State Treasury. SECTION 2. Effective Date. Provides for an effective date of the Act of September 1, 1995, and provides that an existing dental provider organization shall file an application for certificate of authority by December 1, 1995. SECTION 3. Emergency Clause COMPARISON OF ORIGINAL TO SUBSTITUTE As substituted, House Bill 1194 contains the following changes: The name of the organizations regulated by the bill, was changed to delete the word "preferred". A new definition was added to define "basic dental care services," to describe the minimum level of services to be available under a dental provider plan to include preventative, diagnostic, and restorative dental services. Additionally, another definition was added to make it clear that generally accepted accounting principals ("GAAP") was to be applied to dental provider organizations, rather than statutory insurance accounting. A phrase was added throughout the bill to make it clear that dental services are available in a dental provider plan at predetermined fees and/or discounted fees. A requirement was added that samples of any marketing contracts used be included with an application for certificate of authority. A change was made to make it clear that all schedules of dental care service fees to be used by a dental provider organization are required to be filed with the Texas Department of Insurance, rather than merely a sample of a schedule of dental care service fees. A change was made to give applicants a period of 60 days, rather than an "adequate opportunity" to correct deficiencies in an application for certificate of authority. A revision was made to require a timely filing of an application to renew a certificate of authority, in order for existing dental provider organizations to be able to continue operating. Another revision was made to require the prior approval of the commissioner of insurance as to any change of control of a dental provider organization, rather than merely prior notice of such change of control to the commissioner. Revisions were made to require that a schedule of dental care service fees, and a list of participating dentists be given to each member of the dental provider organization. A change was made to make it clear that all schedules of dental care service fees to be used by a dental provider organization are required to be filed with the commissioner of insurance prior to their use; the manner for filing is similar to the "file and use" provisions under Art. 3.42 of the Texas Insurance Code. A revision was made that would remove the requirement of notice and hearing for the commissioner to be able to disapprove a schedule of dental care service fees; a provision was added to allow the dental provider organization to appeal any such disapproval of dental care service fees. A provision was added to require that any marketing materials used by marketing representatives be approved by the dental provider organization, and that all such marketing materials clearly disclose that the dental provider plan is not insurance and is not an HMO contract. The failure of the marketing materials used by a dental provider organization to have the required disclosures is added as a reason for taking disciplinary action against the dental provider organization. A provision was added to make it clear that a dental provider organization holding a valid certificate of authority is a "qualified carrier" for purposes of Art. 3.50-2 of the Texas Insurance. A provision was added to make it clear that a dental provider plan is not a health insurance policy or an employee benefit plan for purposes of the Texas Insurance Code. A provision was added to make Art. 1.10A, Art. 21.21, and Sec. 7 of Art. 1.10 of the Texas Insurance Code apply to dental provider organizations. The fees for filing the initial and renewal applications for certificate of authority were raised from $2,500 to $4,000 and $3,000, respectively, to address the fiscal concerns of the Texas Department of Insurance. SUMMARY OF COMMITTEE ACTION In accordance with House rules, H.B. 1194 was heard in a public hearing on April 12, 1995. The Chair laid out H.B. 1194 and a substitute to H.B. 1194 and recognized Representative Berlanga to explain the difference between the substitute to H.B. 1194 and the filed bill. The Chair recognized the following persons to testify in support of H.B. 1194: L. Dean Cobb, Texas Dental Plans; Hector DeLeon, Texas Dental Pans, Inc.; Hank Gonzales, Hispanic American Republicans of Texas; Dr. W. David Jenkins, Texas Dental Plans Inc.; Thomas P. Washburn, Texas Dental Plans, Inc. The Chair recognized the following persons to testify in opposition to H.B. 1194: Gary Downey, Texas HMO Association, American Dental Corporation; Dennis B. Martinez, Safeguard Health Plans, Inc.; Vincent Contorno, Prudential. The Chair recognized the following person to testify neutrally on H.B. 1194: Rhonda Myron, Texas Department of Insurance. The Chair left H.B. 1194 pending before the Committee. Pursuant to an announcement filed with the Journal Clerk and read by the Reading Clerk, the House Committee on Insurance met in a formal meeting on April 27, 1995 on the House Floor and was called to order by the Chair, Representative John Smithee. The Chair laid out H.B. 1194 and a substitute to H.B. 1194 recognized Representative Shields who moved the Committee adopt the substitute to H.B. 1194. The Chair heard no objections and the substitute to H.B. 1194 was adopted. The Chair recognized Representative Shields who moved the Committee report H.B. 1194 as substituted to the full House with the recommendation that it do pass and be printed. Representative De La Garza seconded the motion and the motion prevailed by the following vote: AYES (6); NAYES (2); ABSENT (1); PNV (0).