I

107TH CONGRESS

1ST SESSION H. R. 145

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.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 3, 2001

Mr. PASCRELL (for himself, Mr. FROST, Mrs. MCCARTHY of New York, and

Mr. GRAHAM) introduced the following bill; which was referred to the

Committee on Energy and Commerce, and in addition to the Committee

on Ways and Means, for a period to be subsequently determined by the

Speaker, in each case for consideration of such provisions as fall within

the jurisdiction of the committee concerned

A BILL

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.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘HMO Solvency Act

5 of 2001’’.
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1 SEC. 2. ASSURING THE SOLVENCY OF MEDICAID MANAGED

2 CARE ORGANIZATIONS.

3 (a) MEDICAID PROGRAM.—Section 1932(b) of the

4 Social Security Act (42 U.S.C. 1396u–2(b)) is amended

5 by adding at the end the following new paragraph:

6 ‘‘(9) SOLVENCY-RELATED REQUIREMENTS.—

7 ‘‘(A) PERIODIC REPORTING.—Each med8 icaid managed care organization shall submit to

9 the State not less often than each quarter (or

10 such more frequent basis as a State may speci11 fy) such financial reports as may be necessary

12 to monitor the financial stability of the organi13 zation and provide an early warning of any risk

14 of insolvency. The State shall review the reports

15 so submitted and shall determine the appro16 priate course of action based upon such review.

17 ‘‘(B) AUDITS.—

18 ‘‘(i) PREAPPROVAL INDEPENDENT

19 AUDIT OF OPERATIONS.—Before a State

20 enters into a contract under section

21 1903(m) (on and after the effective date of

22 this subparagraph) with a medicaid man23 aged care organization, the organization

24 shall provide for such on-site audit as the

25 Secretary shall require to evaluate its in26 ternal structure upon which the organiza-
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1 tion’s financial projections are based. Such

2 audit shall be undertaken by an inde3 pendent entity (which may be an appro4 priate State agency) with such qualifica5 tions as the Secretary shall specify. The

6 audit shall include at least a review of the

7 organization’s claims processing capability

8 and utilization management and account9 ing functions and shall focus on the key

10 business risks the organization is facing,

11 including regulatory risks, competition,

12 provider network, pricing, claims proc13 essing environment, reserves, and informa14 tion system integrity.

15 ‘‘(ii) PERIODIC AUDITS UNDER A

16 STATE AUDIT PLAN.—Each medicaid man17 aged care organization shall provide for

18 such periodic audits as the State shall re19 quire under an audit plan designed by the

20 State and approved by the Secretary. The

21 frequency of such audits shall take into ac22 count changes in subcontracting by, and

23 ownership of, the organization.

24 ‘‘(C) MINIMUM NET WORTH IN CASH OR

25 CASH EQUIVALENTS.—Each medicaid managed
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1 care organization shall maintain, on an ongoing

2 basis, such minimum net worth (in cash or cash

3 equivalents) in such amount, form, and manner

4 as the State shall specify, consistent with guide5 lines established by the Secretary. The State

6 may permit the minimum net worth require7 ment to be met through a written guarantee by

8 a guarantor that meets such requirements as

9 the State shall specify consistent with such

10 guidelines.

11 ‘‘(D) APPROVAL OF CERTAIN SUB12 CONTRACTORS.—In the case of a medicaid man13 aged care organization that proposes to enter

14 into (on and after the effective date of this sub15 paragraph) a subcontract with another entity to

16 provide health care services to enrollees under

17 this title, to perform health care provider reim18 bursement under this title, or to carry out other

19 functions of the organization under this title

20 that have a direct impact on enrollees—

21 ‘‘(i) the organization shall provide no22 tice (and a copy of the contract) to the

23 State at least 90 days before the date it is

24 entered into; and
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1 ‘‘(ii) before the subcontract takes ef2 fect, the organization shall provide for an

3 independent audit of the proposed subcon4 tractor to establish that the subcontractor

5 will be able to provide the services under

6 the subcontract and to guarantee its per7 formance financially in a manner satisfac8 tory to the State.

9 ‘‘(E) REPORTING OF SIGNIFICANT

10 CHANGES IN OWNERSHIP OR SCOPE OF OPER11 ATIONS.—Each medicaid managed care organi12 zation shall provide for such timely reports to

13 the State of such significant changes in the

14 ownership of the organization, or of the scope

15 of operations of the organization, including by

16 takeover or merger, as the State shall require

17 in order to appropriately assure the continuing

18 solvency of the organization after the date such

19 changes take effect.

20 ‘‘(F) FEDERAL SOLVENCY STANDARDS.—

21 Each medicaid managed care organization shall

22 comply with, and each State shall apply, such

23 additional solvency standards as the Secretary

24 may establish to carry out this paragraph.
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1 ‘‘(G) APPLICATION OF CERTAIN REQUIRE2 MENTS TO CONTROLLING ORGANIZATIONS AND

3 ENTITIES.—In the case of a medicaid managed

4 care organization that is substantially owned or

5 controlled by another organization or entity,

6 subparagraphs (A), (C), (E), and (as appro7 priate) (F) shall apply to such other organiza8 tion or entity as well as to the medicaid man9 aged care organization.’’.

10 (b) EFFECTIVE DATE.—

11 (1) IN GENERAL.—Subject to paragraph (2),

12 the amendment made by subsection (a) applies as of

13 such date (not later than 6 months after the date

14 of the enactment of this Act) as the Secretary of

15 Health and Human Services shall specify.

16 (2) TRANSITION.—The Secretary—

17 (A) may delay the effective date of such

18 amendment in the case of a State that requires

19 the enactment of legislation (other than legisla20 tion appropriating funds) in order for the State

21 medicaid plan under title XIX of the Social Se22 curity Act to meet the additional requirements

23 imposed by such amendment; and

24 (B) may permit medicaid managed care or25 ganizations that are operating as of the effec-
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1 tive date of such amendment such additional

2 time as might be appropriate to meet the addi3 tional requirement of section 1932(b)(9)(C) of

4 the Social Security Act (relating to minimum

5 net worth), as added by such amendment.

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

7 ORGANIZATIONS.

8 (a) APPLICATION TO MEDICARE+CHOICE ORGANIZA9 TIONS.—Section 1855 of the Social Security Act (42

10 U.S.C. 1395w–25) is amended by adding at the end the

11 following new subsection:

12 ‘‘(e) SOLVENCY-RELATED REQUIREMENTS.—

13 ‘‘(1) IN GENERAL.—Except as provided in this

14 subsection, the requirements of section 1932(b)(9)

15 shall apply to Medicare+Choice organizations in the

16 same manner as they apply to medicaid managed

17 care organizations except that, for purposes of this

18 subsection, any reference in such section to a State,

19 title XIX, or a contract under section 1903(m) is

20 deemed a reference to the Secretary, this title, and

21 a contract under section 1857, respectively.

22 ‘‘(2) RECOGNITION OF STATE ENFORCE23 MENT.—Insofar as the Secretary finds that a State

24 under section 1932(b)(9) is applying to a

25 Medicare+Choice organization the requirements of
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1 such section and the organization meets such re2 quirements, the Secretary shall deem the organiza3 tion as meeting the comparable requirements that

4 would otherwise be imposed under paragraph (1).

5 ‘‘(3) RELATION TO OTHER REQUIREMENTS.—

6 The Secretary shall waive the application of a re7 quirement of paragraph (1) to an organization inso8 far as the Secretary finds that the application of the

9 requirement would be duplicative of other, similar

10 requirements of this part and would not provide

11 greater protection to Medicare+Choice enrollees.’’.

12 (b) APPLICATION TO OTHER ORGANIZATIONS PRO13 VIDING MEDICARE BENEFITS ON A CAPITATED BASIS.—

14 The Secretary of Health and Human Services shall pro15 vide for the application of the requirement of section

16 1855(e) of the Social Security Act (as added by subsection

17 (a)) to organizations (other than Medicare+Choice orga18 nizations) that receive payment on a capitated basis for

19 provision of services under title XVIII of the Social Secu20 rity Act.

21 (c) EFFECTIVE DATE.—The Secretary of Health and

22 Human Services shall implement the amendment made by

23 subsection (a) and shall implement subsection (b) in a

24 manner similar to the manner in which the amendment
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1 made by section 2(a) becomes effective under paragraphs

2 (1) and (2)(B) of section 2(b).

3 SEC. 4. REPORT ON PROTECTION OF HEALTH CARE PRO4 VIDERS IN CASE OF PLAN INSOLVENCY.

5 The Secretary of Health and Human Services shall

6 report to Congress, not later than 1 year after the date

7 of the enactment of this Act, on—

8 (1) the steps States are taking to guaranty

9 that, in the event of insolvency of a medicaid man10 aged care organization that offers coverage under

11 the medicaid program or a Medicare+Choice organi12 zation that offers a Medicare+Choice plan, health

13 care providers will be protected from financial losses;

14 and

15 (2) what additional steps the Secretary deems

16 appropriate for States or the Federal Government to

17 take to protect health care providers in the event of

18 such an insolvency.

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