BILL ANALYSIS S.B. 1407 By: Harris (Driver) 05-10-95 Committee Report (Amended) BACKGROUND Currently, a health care provider who arranges for or agrees to provide health care services to enrollees of a health care plan on a prepaid basis comes within the definition of a health maintenance organization (HMO) and must be licensed as an HMO by the Texas Department of Insurance. Health care providers and HMOs in the state desire to enter into capitated payment arrangements for the delivery of services to enrollees; however, these arrangements are not legal unless the provider is also licensed as an HMO. Current law prohibits one HMO from contracting with another HMO. An informal working group was formed by the staff of the Texas Department of Insurance last summer to address some of the existing problems with the HMO Act which precluded health care providers and HMOs from entering into new contractual relationships, including capitated risk contracts. This working group included representatives of physicians, hospitals, HMOs, and business. PURPOSE S.B. 1407 provides for contractual arrangements among health maintenance organizations and with physicians and providers. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 2, Article 20A.02, V.T.I.C. (Texas Health Maintenance Organization Act), as follows: (l) Redefines "person" to include limited liability companies and limited liability partnerships. (m) Redefines "physician" to include an individual licensed to practice medicine in this state; a professional association organized under Article 1528f, V.T.C.S. (Texas Professional Association Act) or a nonprofit health corporation certified under Section 5.01, Article 4495b, V.T.C.S. (Medical Practice Act); or another person wholly owned by physicians. (n) Redefines "provider" as any person other than a physician, including a licensed doctor of chiropractic, registered nurse, pharmacist, optometrist, pharmacy, hospital or other institution or organization or person that is licensed or otherwise authorized to provide a health care service in this state; a person who is wholly owned or controlled by a provider or by a group of providers who are licensed to provide the same health care service; or a person who is wholly owned or controlled by one or more hospitals and physicians, including a physician-hospital organization. (u) Defines "health maintenance organization delivery network." SECTION 2. Amends Section 6(a), Article 20A.06, V.T.I.C., to include the use of other health maintenance organizations (HMOs) in the provisions of the powers of an HMO. Makes conforming changes. SECTION 3. Amends Section 26(f), Article 20A.26, V.T.I.C., as follows: (f)(1) Prohibits this Act from being applicable to any physician, rather than a licensed practitioner, a professional association, or a nonprofit corporation, so long as that physician is engaged in the delivery of or arranges for the delivery of care that is within the definition of medical care; or any provider that furnishes or arranges for the delivery of health care services other than medical care as a part of an HMO delivery network. (2)-(3) Make nonsubstantive and conforming changes. (4) Prohibits, except for Articles 21.07-6 and 21.58A, Insurance Code, provisions of the insurance laws including the group hospital service corporation law from applying to physicians and providers. Makes conforming changes. (5) Prohibits this Act and the Insurance Code from being construed to prohibit a physician or provider participating in an HMO delivery network, whether contracting with the HMO under Section 6(a)(3) of this Act or subcontracting with a physician or provider in the HMO delivery network, from entering into a contractual arrangement described under Subdivisions (6)-(8) of this subsection if the contractual arrangement is entered into in furtherance of the delivery of health care services or medical care through a contractual arrangement with an HMO. (6) Authorizes a physician to contract to provide medical care or arrange to provide medical care through subcontracts with other physicians and any services through other providers that are ancillary to the practice of medicine, other than hospital or any other institutional or inpatient provider services. (7) Authorizes a provider to contract to provide or arrange to provide through subcontracts with other similarly licensed providers, any health care services that those providers are licensed to provide, other than medical care. (8) Authorizes a provider to contract to provide, or arrange to provide through subcontracts with other providers, a health care service that the provider is not licensed to provide, other than medical care, if the contracted or subcontracted services constitute less than 15 percent of the total amount of services to be provided by that provider or arranged to be provided by that provider. (9) Authorizes a contract or subcontract authorized under Subdivision (6), (7), or (8), of this subsection to provide for compensation based on a fee-for-service arrangement, a risk-sharing arrangement, or capitated risk arrangement under which a fixed predetermined payment is made in exchange for the provision of, or the arrangement to provide and the guaranty of the provision of, a defined set of covered services to the covered persons for a specified period, regardless of the amount of services actually provided. SECTION 4. Effective date: September 1, 1995. Makes application of this Act prospective beginning January 1, 1996. SECTION 5. Emergency clause. EXPLANATION OF AMENDMENTS As amended, S.B. 1407 makes conforming changes to Section 6 (a)(3), Article 20A.06, V.T.I.C. by inserting "other health maintenance organizations". Amends Subsection (f)(1), (4), and (5), 20A.26, V.T.I.C. by removing the applicability of this Act to physicians or providers who furnishes or arranges for the delivery of health care services; Subsection (4) provides that Article 21.58A shall not apply to utilization review undertaken by a physician or provider in the ordinary course of treatment of patients pursuant to a review agreement(s) with a HMO; and Subsection (5) makes additional conforming changes, adds Subdivision (9) to the contractual arrangement, and strikes the contractual agreement if it is entered into in the furtherance of the delivery of health care services. SUMMARY OF COMMITTEE ACTION In accordance with House rules, S.B. 1407 was heard in a public hearing on May 10, 1995. The Chair laid out S.B. 1407 and an amendment by Representative Driver to S.B. 1407. The Chair recognized Representative Driver to explain the bill and amendment. The Chair recognized the following person to testify neutrally on S.B. 1407: Rhonda Myron, Texas Department of Insurance. The Chair recognized Representative Driver who moved the Committee adopt the amendment to S.B. 1407. The Chair heard no objections and the amendment was adopted. The Chair recognized Representative Counts who moved the Committee report S.B. 1407 as amended to the full House with the recommendation that it do pass, be printed and be sent to the Committee on Local and Consent. Representative G. Lewis seconded the motion and the motion prevailed by the following vote: AYES: (8); NAYES: (0); PNV: (0); ABSENT: (1)