Editorial Note on Part 422
Editorial Note: Nomenclature changes to part 422 appear at 70 FR 4741, Jan. 28, 2005.

Editorial Note on Subpart H of Part 422
Editorial Note: Nomenclature changes to subpart H of part 422 appear at 63 FR 35098, 35099, June 26, 1998.

§ 422.390 Guarantees. ( a ) *General policy.* A PSO, or the legal entity of which the PSO is a component, may apply to CMS to use the financial resources of a guarantor for the purpose of meeting the requirements in § 422.384. CMS has the discretion to approve or deny approval of the use of a guarantor.
( b ) *Request to use a guarantor.* To apply to use the financial resources of a guarantor, a PSO must submit to CMS— ( 1 ) Documentation that the guarantor meets the requirements for a guarantor under paragraph (c) of this section; and
( 2 ) The guarantor's independently audited financial statements for the current year-to-date and for the two most recent fiscal years. The financial statements must include the guarantor's balance sheets, profit and loss statements, and cash flow statements.
( c ) *Requirements for guarantor.* To serve as a guarantor, an organization must meet the following requirements: ( 1 ) Be a legal entity authorized to conduct business within a State of the United States.
( 2 ) Not be under Federal or State bankruptcy or rehabilitation proceedings.
( 3 ) Have a net worth (not including other guarantees, intangibles and restricted reserves) equal to three times the amount of the PSO guarantee.
( 4 ) If the guarantor is regulated by a State insurance commissioner, or other State official with authority for risk-bearing entities, it must meet the net worth requirement in § 422.390(c)(3) with all guarantees and all investments in and loans to organizations covered by guarantees excluded from its assets.
( 5 ) If the guarantor is not regulated by a State insurance commissioner, or other similar State official it must meet the net worth requirement in § 422.390(c)(3) with all guarantees and all investments in and loans to organizations covered by a guarantee and to related parties (subsidiaries and affiliates) excluded from its assets.
( d ) *Guarantee document.* If the guarantee request is approved, a PSO must submit to CMS a written guarantee document signed by an appropriate authority of the guarantor. The guarantee document must— ( 1 ) State the financial obligation covered by the guarantee;
( 2 ) Agree to— ( i ) Unconditionally fulfill the financial obligation covered by the guarantee; and
( ii ) Not subordinate the guarantee to any other claim on the resources of the guarantor;
( 3 ) Declare that the guarantor must act on a timely basis, in any case not more than 5 business days, to satisfy the financial obligation covered by the guarantee; and
( 4 ) Meet other conditions as CMS may establish from time to time.
( e ) *Reporting requirement.* A PSO must submit to CMS the current internal financial statements and annual audited financial statements of the guarantor according to the schedule, manner, and form that CMS requests.
( f ) *Modification, substitution, and termination of a guarantee.* A PSO cannot modify, substitute or terminate a guarantee unless the PSO— ( 1 ) Requests CMS's approval at least 90 days before the proposed effective date of the modification, substitution, or termination;
( 2 ) Demonstrates to CMS's satisfaction that the modification, substitution, or termination will not result in insolvency of the PSO; and
( 3 ) Demonstrates how the PSO will meet the requirements of this section.
( g ) *Nullification.* If at any time the guarantor or the guarantee ceases to meet the requirements of this section, CMS will notify the PSO that it ceases to recognize the guarantee document. In the event of this nullification, a PSO must— ( 1 ) Meet the applicable requirements of this section within 15 business days; and
( 2 ) If required by CMS, meet a portion of the applicable requirements in less than the time period granted in paragraph (g)(1) of this section.
[63 FR 25379, May 7, 1998]