ATTORNEY GENERAL OF TEXAS 

GREG ABBOTT 

March 17,2003 

The Honorable Joe Driver Opinion No. GA-0040 

Chair, House Committee on Law Enforcement 

Texas House of Representatives Re: Whether the Texas Department of Insurance 

P.O. Box 2910 is authorized to enforce certain provisions of the 

Austin, Texas 78768-2910 Health Maintenance Organization Act, TEX. INS. 

CODE ANN. ch. 20A, against physicians who are 

not under contract with a health maintenance 

organization (RQ-05 97- JC) 

Dear Representative Driver: 

Your predecessor as chair of the House Committee on Public Safety, which has been 

renamed the House Committee on Law Enforcement, asked about the authority of the Texas 

Department of Insurance under the Health Maintenance Organization Act, TEX. INS. CODE ANN. ch. 

20A (Vernon 198 1 & Supp. 2003) (“the Act”), with respect to certain billing practices by physicians 

who are not under contract with a health maintenance organization (HMO”). Your predecessor 

explained that sometimes a physician who has not contracted with an HMO will treat an HMO 

enrollee at a facility, such as a hospital, that has contracted with the HMO. Generally in these 

situations, the physician will first seek payment from the HMO, but, if the HMO does not pay in full, 

the physician will send a bill for the remaining balance to the HMO enrollee.’ This practice is called 

“balance billing.” Request Letter, supra note 1 (Memorandum at 2). Your predecessor avered that 

the Texas Department of Insurance, in addressing enrollee complaints about this practice, “has 

recently attempted to enforce the ‘hold harmless’ provisions of HMO contracts against physicians 

who have not contracted with HMOs,” id. (Memorandum at l), and asked about the Department’s 

authority with regard to balance billing by these physicians, id. at 1. 

Under the Act, the term “[hlealth maintenance organization” “means any person who 

arranges for or provides a health care plan, a limited health care service plan, or a single health care 

service plan to enrollees on a prepaid basis.” TEX. INS. CODE ANN. art. 20A.O2(n) (Vernon Supp. 

‘Letter from Honorable Bob Turner, Chair, House Committee on Public Safety, to Honorable John Comyn, 

Texas Attorney General (Aug. 27,2002) (on file with Opinion Committee) [hereinafter Request Letter]. 
The Honorable Joe Driver - Page 2 (GA-0040) 

2003).2 The Act requires an HMO to establish a network of physicians and other providers with 

which it contracts to provide services to enrollees. See id. arts. 20A.O4(a)( 14)-( 15), 20A.O5(a); see 

also id. art. 20A.O2(r) (defining “physician”), art. 20A.O2(t) (defining “provider” to include “any 

person other than a physician, including a licensed doctor of chiropractic, registered nurse, 

pharmacist, optometrist, registered optician, acupuncturist, pharmacy, hospital, or other institution 

or organization or person that is licensed or otherwise authorized to provide a health care service in 

this state”). The term “provider” includes hospitals and other health care facilities. See id. art. 

20A.O2(t). An “enrollee” is “an individual who is enrolled in a health care plan, including covered 

dependents.” Id. art. 20A.O2(h). 

Significantly, article 20A. 1 SA(g) requires that “[a]11 contracts or other agreements between 

a health maintenance organization and a physician or provider shall specify that the physician or 

provider will hold an enrollee harmless for payment of the cost of covered health care services in the 

event the health maintenance organization fails to pay the provider for health care services.” Id. at-t. 

20A. 18A(g). As the request letter explains, “[plhysicians and providers that participate in an HMO’s 

network contractually agree to predetermined rates .for covered services, and the ‘hold harmless’ 

clauses in their contracts require network physicians to accept payment from the HMO as payment 

in full.” Request Letter, supra note 1 (Memorandum at 1). 

Enrollees may receive some covered medical services from physicians and providers who 

are not part of the HMO’s network. Generally, the Act provides that an HMO must compensate 

those physicians and providers at an agreed or the “usual and customary” rate. The Act requires, for 

example, that an HMO’s application for a certificate of authority include “documentation 

demonstrating that the health maintenance organization will pay for emergency care services 

performed by non-network physicians or providers at the negotiated or usual and customary rate.” 

TEX. INS. CODE ANN. art. 20A.O4(a)( 16) (V emon Supp. 2003). And, pursuant to article 20A.O9(f), 

if medically necessary covered services are not available through network physicians or providers, 

“the health maintenance organization, on the request of a network physician or provider, within a 

reasonable period, shall allow referral to a non-network physician or provider and shall fully 

reimburse the non-network physician or provider at the usual and customary or an agreed rate.” Id. 

art. 2OA.O9(f). 

Your predecessor asked primarily whether the Act prohibits a physician who is not under 

contract with an HMO “from recovering the balance of billed charges from an HMO enrollee.” 

Request Letter, supra note 1. 

2See also TEX. INS. CODE ANN. art. 20A.02(1) (Vernon Supp. 2003) (“‘Health care plan’ means any plan 

whereby any person undertakes to provide, arrange for, pay for, or reimburse any part of the cost of any health care 

services; provided, however, a part of such plan consists of arranging for or the provision of health care services, as 

distinguished from indemnification against the cost of such service, on a prepaid basis through insurance or otherwise.“), 

id. art. 20A.O2(m) (“‘Health care services’ means any services, including the furnishing to any individual of 

pharmaceutical services, medical, chiropractic, or dental care, or hospitalization or incident to the furnishing of such 

services, care, or hospitalization, as well as the furnishing to any person of any and all other services for the purpose of 

preventing, alleviating, curing or healing human illness or injury a limited health care service plan, or a single health care 

service plan.“). 
The Honorable Joe Driver - Page 3 (GA-0040) 

The Act does not require a physician who is not under contract with an HMO to hold an 

enrollee ofthe HMO harmless. Article 20A. 18A(g) requires that “[a]11 contracts or other agreements 

between a health maintenance organization and a physician or provider shall specify that the 

physician or provider will hold an enrollee harmless for payment of the cost of covered health care 

services in the event the health maintenance organization fails to pay the provider for health care 

services.” TEX. INS. CODE ANN. art. 20A. 18A(g) (Vernon Supp. 2003). The statutory requirement 

that a physician hold an enrollee harmless for the cost of covered health care services is imposed by 

the physician’s contract with the HMO. The statutory requirement does not exist absent a contract. 

Nor does the Act otherwise prohibit a physician who is not under contract with an HMO from billing 

an enrollee of the HMO for charges not paid by the HMO. 

The Texas Department of Insurance does not disagree. Indeed, it expressly acknowledges 

that the Act “per se does not prohibit a physician that is not under contract with an HMO fi-om 

balance billing an HMO enrollee.“3 The Department also asserts, however, that the Act “allows an 

HMO to contract to ensure that a physician rendering services . . . in a network facility has agreed 

to honor the facility’s hold harmless agreement.” TDI Brief, supra note 3, at 6. Our conclusion that 

the Act does not prohibit a physician who is not under contract with an HMO from balance billing 

assumes that the physician has not entered into an agreement with the HMO or the network facility 

that would require the physician to hold the enrollee harmless. It is beyond the scope of your 

predecessor’s query whether state law permits a network facility to require non-network physicians 

with privileges at the facility to honor the facility’s hold harmless agreement with an HMO4 and we 

do not address that issue. 

Your predecessor also asked about the Texas Department of Insurance’s authority to enforce 

the Act against physicians who are not under contract with an HMO. He specifically asked, “Does 

the. . . Act authorize the Texas Department of Insurance to enforce provisions of the . . . Act against 

physicians [who] are not under contract with an HMO?” Request Letter, supra note 1. We answer 

this very broad question only with respect to the practice of balance billing. 

The Department of Insurance acknowledges that the Act does not authorize it to enforce the 

Act to prohibit a physician who is not under contract with an HMO from balance billing an enrollee. 

See TDI Brief, supra note 3, at 5 (“[the Act] does not authorize TDI to enforce provisions of the 

HMO Act to prohibit physicians from balance billing enrollees”). We agree. The Department is not 

3Brief from Sara Shiplet Waitt, Senior Associate Commissioner, Texas Department of Insurance, to Susan 

Gusky, Chair, Opinion Committee, Office of the Attorney General at 6 (Nov. 4,2002) (on file with Opinion Committee) 

[hereinafter TDI Briefj. 

4Compare TDI Brief at 4 (“the department believes the most efficient way to resolve this problem, under the 

current legal framework, is for an HMO to require its contracted facilities, including hospitals, to require physicians 

practicing there to honor the facility’s hold harmless agreement with the HMO”), with Brief from Lee A. Spangler, 

Assistant General Counsel, Texas Medical Association, to Susan Denmon Gusky, Chair, Opinion Committee, Office of 

the Attorney General at 4 (Oct. 7,2002) ( on f 1 1 e with Opinion Committee) (“a hospital cannot bind a physician to the 

terms of a contract to which it agrees”), and Supplemental Brief from Lee A. Spangler, Assistant General Counsel, Texas 

Medical Association, to Susan Denmon Gusky, Chair, Opinion Committee, Office of the Attorney General (Dec. 6,2002) 

(on file with Opinion Committee). 
The Honorable Joe Driver - Page 4 (GA-0040) 

authorized to insist that a physician who is not under contract with an HMO refrain from balance 

billing an enrollee of the HMO because the Act does not prohibit the physician from balance billing 

the enro11ee.5 See TEX. INS. CODE ANN. art. 20A. 18A(g) (Vernon Supp. 2003) (“AZ contracts or 

other agreements between a health maintenance organization and a physician or provider shall 

specify that the physician or provider will hold an enrollee harmless for payment of the cost of 

covered health care services in the event the health maintenance organization fails to pay the 

provider for health care services.“) (emphasis added). 

‘Again, we assume that the physician has not entered into an agreement with the HMO or the network facility 

that would require the physician to hold the enrollee harmless. 
The Honorable Joe Driver - Page 5 W-0040) 

SUMMARY 

The Health Maintenance Organization Act, TEX. INS. CODE 

ANN. ch. 20A (Vernon 1981 & Supp. 2003), does not prohibit a 

physician who is not under contract with an HMO from billing an 

HMO enrollee for charges not paid by the HMO. The Department of 

Insurance is not authorized to enforce the Act to prohibit such a 

physician from balance billing an enrollee of the HMO. 

Very truly yours, 

BARRY R. MCBEE 

First Assistant Attorney General 

DON R. WILLETT 

Deputy Attorney General - General Counsel 

NANCY S. FULLER 

Chair, Opinion Comrnittee 

Mary R. Crouter 

Assistant Attorney General, Opinion Committee