To amend titles XVIII and XIX of the Social Security Act to assure the financial solvency of Medicare+Choice organizations and Medicaid managed care organizations.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``HMO Solvency Act of 2001''.

SEC. 2. ASSURING THE SOLVENCY OF MEDICAID MANAGED CARE ORGANIZATIONS.

    (a) Medicaid Program.--Section 1932(b) of the Social Security Act 
(42 U.S.C. 1396u-2(b)) is amended by adding at the end the following 
new paragraph:
            ``(9) Solvency-related requirements.--
                    ``(A) Periodic reporting.--Each medicaid managed 
                care organization shall submit to the State not less 
                often than each quarter (or such more frequent basis as 
                a State may specify) such financial reports as may be 
                necessary to monitor the financial stability of the 
                organization and provide an early warning of any risk 
                of insolvency. The State shall review the reports so 
                submitted and shall determine the appropriate course of 
                action based upon such review.
                    ``(B) Audits.--
                            ``(i) Preapproval independent audit of 
                        operations.--Before a State enters into a 
                        contract under section 1903(m) (on and after 
                        the effective date of this subparagraph) with a 
                        medicaid managed care organization, the 
                        organization shall provide for such on-site 
                        audit as the Secretary shall require to 
                        evaluate its internal structure upon which the 
                        organization's financial projections are based. 
                        Such audit shall be undertaken by an 
                        independent entity (which may be an appropriate 
                        State agency) with such qualifications as the 
                        Secretary shall specify. The audit shall 
                        include at least a review of the organization's 
                        claims processing capability and utilization 
                        management and accounting functions and shall 
                        focus on the key business risks the 
                        organization is facing, including regulatory 
                        risks, competition, provider network, pricing, 
                        claims processing environment, reserves, and 
                        information system integrity.
                            ``(ii) Periodic audits under a state audit 
                        plan.--Each medicaid managed care organization 
                        shall provide for such periodic audits as the 
                        State shall require under an audit plan 
                        designed by the State and approved by the 
                        Secretary. The frequency of such audits shall 
                        take into account changes in subcontracting by, 
                        and ownership of, the organization.
                    ``(C) Minimum net worth in cash or cash 
                equivalents.--Each medicaid managed care organization 
                shall maintain, on an ongoing basis, such minimum net 
                worth (in cash or cash equivalents) in such amount, 
                form, and manner as the State shall specify, consistent 
                with guidelines established by the Secretary. The State 
                may permit the minimum net worth requirement to be met 
                through a written guarantee by a guarantor that meets 
                such requirements as the State shall specify consistent 
                with such guidelines.
                    ``(D) Approval of certain subcontractors.--In the 
                case of a medicaid managed care organization that 
                proposes to enter into (on and after the effective date 
                of this subparagraph) a subcontract with another entity 
                to provide health care services to enrollees under this 
                title, to perform health care provider reimbursement 
                under this title, or to carry out other functions of 
                the organization under this title that have a direct 
                impact on enrollees--
                            ``(i) the organization shall provide notice 
                        (and a copy of the contract) to the State at 
                        least 90 days before the date it is entered 
                        into; and
                            ``(ii) before the subcontract takes effect, 
                        the organization shall provide for an 
                        independent audit of the proposed subcontractor 
                        to establish that the subcontractor will be 
                        able to provide the services under the 
                        subcontract and to guarantee its performance 
                        financially in a manner satisfactory to the 
                        State.
                    ``(E) Reporting of significant changes in ownership 
                or scope of operations.--Each medicaid managed care 
                organization shall provide for such timely reports to 
                the State of such significant changes in the ownership 
                of the organization, or of the scope of operations of 
                the organization, including by takeover or merger, as 
                the State shall require in order to appropriately 
                assure the continuing solvency of the organization 
                after the date such changes take effect.
                    ``(F) Federal solvency standards.--Each medicaid 
                managed care organization shall comply with, and each 
                State shall apply, such additional solvency standards 
                as the Secretary may establish to carry out this 
                paragraph.
                    ``(G) Application of certain requirements to 
                controlling organizations and entities.--In the case of 
                a medicaid managed care organization that is 
                substantially owned or controlled by another 
                organization or entity, subparagraphs (A), (C), (E), 
                and (as appropriate) (F) shall apply to such other 
                organization or entity as well as to the medicaid 
                managed care organization.''.
    (b) Effective Date.--
            (1) In general.--Subject to paragraph (2), the amendment 
        made by subsection (a) applies as of such date (not later than 
        6 months after the date of the enactment of this Act) as the 
        Secretary of Health and Human Services shall specify.
            (2) Transition.--The Secretary--
                    (A) may delay the effective date of such amendment 
                in the case of a State that requires the enactment of 
                legislation (other than legislation appropriating 
                funds) in order for the State medicaid plan under title 
                XIX of the Social Security Act to meet the additional 
                requirements imposed by such amendment; and
                    (B) may permit medicaid managed care organizations 
                that are operating as of the effective date of such 
                amendment such additional time as might be appropriate 
                to meet the additional requirement of section 
                1932(b)(9)(C) of the Social Security Act (relating to 
                minimum net worth), as added by such amendment.

SEC. 3. ASSURING THE SOLVENCY OF MEDICARE+CHOICE ORGANIZATIONS.

    (a) Application to Medicare+Choice Organizations.--Section 1855 of 
the Social Security Act (42 U.S.C. 1395w-25) is amended by adding at 
the end the following new subsection:
    ``(e) Solvency-Related Requirements.--
            ``(1) In general.--Except as provided in this subsection, 
        the requirements of section 1932(b)(9) shall apply to 
        Medicare+Choice organizations in the same manner as they apply 
        to medicaid managed care organizations except that, for 
        purposes of this subsection, any reference in such section to a 
        State, title XIX, or a contract under section 1903(m) is deemed 
        a reference to the Secretary, this title, and a contract under 
        section 1857, respectively.
            ``(2) Recognition of state enforcement.--Insofar as the 
        Secretary finds that a State under section 1932(b)(9) is 
        applying to a Medicare+Choice organization the requirements of 
        such section and the organization meets such requirements, the 
        Secretary shall deem the organization as meeting the comparable 
        requirements that would otherwise be imposed under paragraph 
        (1).
            ``(3) Relation to other requirements.--The Secretary shall 
        waive the application of a requirement of paragraph (1) to an 
        organization insofar as the Secretary finds that the 
        application of the requirement would be duplicative of other, 
        similar requirements of this part and would not provide greater 
        protection to Medicare+Choice enrollees.''.
    (b) Application to Other Organizations Providing Medicare Benefits 
on a Capitated Basis.--The Secretary of Health and Human Services shall 
provide for the application of the requirement of section 1855(e) of 
the Social Security Act (as added by subsection (a)) to organizations 
(other than Medicare+Choice organizations) that receive payment on a 
capitated basis for provision of services under title XVIII of the 
Social Security Act.
    (c) Effective Date.--The Secretary of Health and Human Services 
shall implement the amendment made by subsection (a) and shall 
implement subsection (b) in a manner similar to the manner in which the 
amendment made by section 2(a) becomes effective under paragraphs (1) 
and (2)(B) of section 2(b).

SEC. 4. REPORT ON PROTECTION OF HEALTH CARE PROVIDERS IN CASE OF PLAN 
              INSOLVENCY.

    The Secretary of Health and Human Services shall report to 
Congress, not later than 1 year after the date of the enactment of this 
Act, on--
            (1) the steps States are taking to guaranty that, in the 
        event of insolvency of a medicaid managed care organization 
        that offers coverage under the medicaid program or a 
        Medicare+Choice organization that offers a Medicare+Choice 
        plan, health care providers will be protected from financial 
        losses; and
            (2) what additional steps the Secretary deems appropriate 
        for States or the Federal Government to take to protect health 
        care providers in the event of such an insolvency.

Summary: HMO Solvency Act of 2001 - Amends title XIX (Medicaid) of the Social Security Act (SSA) to establish solvency-related requirements for Medicaid managed care organizations, requirements that include periodic financial reporting to the State, independent audits, and approval of certain subcontractors. Amends part C (MedicareChoice) of SSA title XVIII (Medicare) to establish solvency-related requirements for application to MedicareChoice organizations. Directs the Secretary of Health and Human Services to provide for the application of such requirements to organizations other than MedicareChoice organizations that receive payment on a capitated basis for provision of Medicare services.