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)