THIRTEENTH CONGRESS OF THE REPUBLIC 
) 
OF THE PHILIPPINES 
) 
Firsf Regular Session 
1 
SENATE 
Introduced by Senator S. R. Osmeiia 111 
EXPLANATORY NOTE 
Article I I ,  Section 15 of the Constitution declares that the State shall protect and 
promote the right to health of the people and instill health consciousness among them. 
Every individual's health is the concern of society. 
The uncertainty which 
attends most health problems further justifies that the State intervene in the provision 
of adequate health services to every individual. 
Health insurance was one of the earliest institutions developed to address the 
uncertainty related to health problems. Subsequently, however, the distortive effects of 
health insurance demonstrated the moral hazard problems accompanying health 
insurance. Firstly, there is the tendency of people with insurance coverage to exert 
less effort to stay in good health and prevent the incidence of illness. Secondly, 
insurance benefits appear to influence the decisions made by health practitioners in 
behalf of patients to order services over and above what is efficient. 
Health maintenance organizations were developed in the early 1980's as a 
more efficient manner of addressing the uncertainty related to health problems. In 
encourages the individual, under the supervision of the HMO to undertake both 
preventive and curative health measure. Also, the HMO participates in the 
management of costs incidental to the provision of the service, hence there is an 
incentive to be more efficient. 
This bill lays the ground rules for the operation of HMOs under government 
supervision to ensure the public safety and protection. It sets down the procedures 
and requirements for licensing of HMOs as well as the grounds for suspension and 
revocation of their license to operate. 
In view of the foregoing, early passage of this bill is earnestly requested. 
S E ~ G I O  
OSMENA III 
Senator 


THIRTEENTH CONGRESS OF THE REPUBLIC 
1 
OF THE PHILIPPINE 
First Regular Session 
SENAT 
S. No. 
t
.
 
I 
Introduced by Senator S. R. OsmeAa 111 
AN ACT 
PROVIDING AFFORDABLE HEALTH CARE SERVICES, THROUGH THE HEALTH 
MA1 NTE NAN C E ORGANIZATIONS , REG U LATl N G TH El R OPE RAT1 0 N S , AND 
FOR OTHER PURPOSES 
Be it enacted by the Senate and the House of Representatives of the Republic of the 
Philippines in Congress assembled: 
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SECTION 1. Short Title. - This Act shall be known as the “Health 
Maintenance Organization (HMOs) Code of 2004.” 
SEC. 2. Sfafernent of Policy - It is hereby declared the policy of the 
State to protect and promote the right to health of the people and instill health 
consciousness among them, Pursuant to this policy, government shall provide 
incentives and set the guidelines governing Health Maintenance Organizations 
to enhance accessibility to affordable health care services. It shall likewise 
recognize, encourage and tap the participation of the private sector in providing, 
funding and managing the delivery of cost effective and quality health care 
services, 
SEC. 3. Objectives. - In line with the above policy, this Act seeks to: 
(a) Recognize HMOs as unique medical service providers that combine 
the financing, management and provision of heaJth services and to 
encourage their growth by granting them incentives. 
(b) Establish the regulatory framework for HMOs that shall protect the 
rights of the buying public as well s the various sectors involved in the 
delivery of health care services. 
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providers. 
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terms shall mean: 
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(c) Promote the provision of quality health services and to improve the 
efficiency in delivery of health care services. 
(d) Protect the rights of HMOs, their members and health care service 
(e) Make people more health-conscious by making health care services 
readily available, accessible and affordable. 
SEC. 4. Definifion of Terms. - When used in this Code, the following 
(a) Actuary - a statistician with the necessary training, qualification and 
experience and a fellow of the Actuarial Society of the Philippines. He 
shall, among others, compute rates for health care plans on the basis 
of experience tables and determine the financial soundness of health 
care agreements and operations of HMOs 
(b) Agreement - A contract entered into by a HMO with a member or 
group of members or a corporation on behalf of its employees and 
their dependents, for the former to provide or arrange to provide pro- 
agreed or designated health care services to the latter, for a fixed 
period of time and for a specified fee; 
(c) Association - The Association of Health Maintenance Organizations 
of the Philippines, Inc. (AHMOPI), the existing association of Health 
Maintenance Organizations, recognized by the Department of Health 
as the industry association and representing a large number of HMOs 
as well as a greater majority of enrolled members; 
(d) Co-payment - the amount a member must pay in order that he can 
receive a specific service which is not fully prepaid; 
(e) Corporation - a juridical person as defined by law, duly registered 
with the Securities and Exchange Commission; 
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(9 Deductible - the amount a member pays out-of-pocket before the 
Health Maintenance Organizations begins to pay the cost associated 
with treatment; 
(9) Deparfmenf - the Department of Health (DOH); 
(h) Health Maintenance Organizafion (HMO) - a medicaI/heaIth service 
provider to provide pre-agreed or designated health care services to 
its enrolled members for a fixed periodic fee and for a specific period 
of time. It uses a system of health care delivery called managed care 
that influences utilization and costs of services and measures 
performance resulting in quality cost-effective care. It integrates 
financing and delivery and health care services through and managed 
health plan which may be in the form of a comprehensive HMO plan, 
preferred provider plan, managed indemnity or self-insured plans, 
third party administration plan and such others that fall under the 
definition of a managed health plan. 
A health maintenance organization shall possess the following 
characteristics of qualify as HMO: 
1. An organized system of providing and assuring health care 
services in a defined geographical area; 
2. A 
pre-agreed 
set 
of 
basic 
and 
supplemental 
health 
maintenance and treatment services; 
3. Has enrolled group of individuals paying a fixed periodic fee. 
By definition, being a medical service provider, the HMO is exempt 
from payment of the Expanded Value Added Tax (EVAT) under Republic 
Act No. 7716. In line with the above principle of encouraging private 
sector to help provide health care services and making membership fees 
more affordable to low income sectors of the population, such exemption 
shall be maintained. 
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A Health Maintenance Organization shall not be considered an 
insurance company, or quasi-insurance firm, or pre-need entity, or a 
dealer in security for the reason that the pre-need health care services 
are immediately available to the members of HMOs, once the contract is 
entered into and paid, unlike insurance of pre-need contracts which 
required the occurrence of contingent events insured against or covered, 
before the benefits are availed of by the insured. 
(i) 
Managed Care - a system of health care delivery that influences 
utilization and cost of services and measures performance with a goal 
to deliver quality, cost-effective health care; 
(j) Managed Health Plan - a plan that covers health care services 
through an integrated and organized system of financing, delivery and 
management of services to an enrolled population for a specific 
period of time and a fixed periodic fee; 
(k) Member - an individual or a person who is part of a group or an 
employee or a corporation and his dependents, who entered into a 
contract with a HMO; 
( I )  Person - a natural or juridical person as defined by law; 
(m) 
Provider - a health professional such as physician, dentist, nurse or 
midwife or health care professionals’ group, or a health facility such 
as hospital, diagnostic clinic, medical clinic, pharmacy or Health 
Maintenance Organization, licensed or authorized by the proper 
government agency to provide health care services; 
(n) Participating or Accredited Provider - a provider as defined in 
paragraph M who under an express contract with a Health 
Maintenance Organization (HMO) or with the latter’s contractor or 
subcontractor, has agreed to provide health care services to the HMO 
members, whit the right to payment, other than co-payment or 
deductible, directly or indirectly from the HMO; 
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(0) Membership Fee - The amount of money paid by an individual 
member, group or corporation on behalf of its employees and the 
latter’s dependents, in payment for pre-agreed set of health services, 
for a specific period of time. 
SEC. 5. Healfh Care Incenfives. - HMOs and health care providers 
engaged in health care services pursuant to the provisions of this Act shall be 
entitled to the following incentives: 
1. Reduced customs duties for importation of medical equipment used in 
health care services of HMOs and similar providers contemplated 
under this Act; 
2. Exemption from percentage tax, documentary stamp tax and Value 
Added Tax on all health care agreements so as to reduce the cost of 
health care; 
3. Making the cost of health care membership fees that corporations or 
employers pay for the health care plans of their employees deductible 
from the taxable income of said employers, as this will encourage 
employers to provide health care plans for their employees; 
4. Such other incentives that the Department of Health may deem proper 
to recommend, subject to the concurrence by the Department of 
Finance and approval by the President of the Philippines. 
SEC. 6. Regisfrafion. - A HMO shall be legally organized as a juridical 
person and shall be registered with the Securities and Exchange Commission. 
Thus, HMOs shall be organized in accordance with the provisions of the 
Corporation Code. 
SEC. 7. Licensure. - The Department of Health is hereby designated as 
the government agency to supervise and regulate the operations of HMO and all 
other entities offering health care services that fall under the definition of HMO in 
accordance with Section 4, paragraph H of this Act. After registering with the 
Securities and Exchange Commission said entities shall secure a license to 
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operate as an HMO from the Department of Health. Existing HMOs in the time 
of the effectivity of this Act shall likewise secure a license to operate from the 
Department of Health, in accordance with the Transitory Provisions provided 
herein. 
The Department shall issue the license to operate within thirty (30) days 
from the submission of the, complete application and requirements. In case the 
application is not approved, the reasons therefor shall immediately be made 
known to the application immediately. 
SEC. 8. Licensure Requirements. - The Department of Health shall 
promulgate the requirements for licensure and renewal of licensure and renewal 
of license of HMOs, based on DOH Administrative Order No. 34 and the 
provisions of Section 7 of this Act. The requirements shall include: 
(a) The minimum authorized and paid-up capitalization required; 
(b) Financial Statement/projections for new HMOs; 
(c) Annual Reports for existing HMOs; 
(d) Data on membership enrollment; 
(e) Health care services being offered; 
(9 Geographical area of operation; 
(9) Provide network and such other information that the Department may 
deem necessary 
These requirements may be amended by the Department to conform to 
the needs of the time and such requirements or any amendment thereto shall be 
published in at least one newspaper of general circulation. 
The license to operate granted under this Act shall be effective for a 
period of one year, subject to renewal by the Department. 
SEC. 9. Actuaries/Financia/ Consultants - To protect the potential and 
enrolled members of HMOs, the Department shall ensure that HMOs adhere to 
actually sound practices and possess financial capabilities to render the 
services stipulated in their agreements, 


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To achieve these objectives, the Department shall engage the services of 
actuaries and/or financial consultants to analyze the financial status and the 
actuarial soundness of the HMO practices prior to issuance or renewal of 
licenses. For this purpose, the Department shall require from HMOs such 
additional data and reports it deem necessary: Provided, That such data and 
reports are certified by either an actuary, financial consultant or external auditor. 
SEC. 10. Association. -All Health Maintenance Organizations shall for 
purposes of achieving unity in the industry, facilitating government regulations, 
mutual assistance among HMOs, self-regulation and quality competition, be a 
member of the existing association of Health Maintenance Organizations at the 
time of the enactment of this Act. Prior to securing a license from the 
Department, the applicant HMO shall seek membership in the existing 
association of HMOs. No license shall be issued to any HMO unless it is 
certified to be a bona fide member in good standing of such existing association. 
The Association shall issue a certification of membership to all members in good 
standing of such existing association. The Association shall issue a certification 
of membership to all members in good standing in accordance with it By-Laws. 
Provided, That membership shall not be unreasonably withheld from an HMO 
applying for membership. 
SEC. 11. Arbifrafion by the Association and by the Deparfmenf. - 
Complaints that may be brought by members or providers or even by a HMO 
against another HMO shall first be referred to the Association for arbitration. The 
Association shall refer such complaint to the grievance mechanism in the 
Association and shall be decided within (30) days. In the event no settlement of 
the complaint has been reached after thirty (30) days, the Association shall 
submit the case to the Department which shall assume jurisdiction over the 
case, and shall decide the case within sixty (60) days. The decision of the 
Department shall be final a,nd executory, appealable to the Supreme Court only 
on questions of law. 
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SEC. 12. Grounds for Suspension of License. - The license to 
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operate issued to HMOs may be suspended by the Department, with strict 
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adherence to due process, on the following grounds: 
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2. When agreements with members are not honored; 
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When, based on the financial reports, continued operation of the HMO 
business is no longer financially sound; 
3. When the statements in the application for license or renewal thereof 
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are found to be false, misleading, inadequate or incomplete such that 
the Department cannot ascertain the true status from such statement, 
sufficient to arrive at an honest appraisal of the true capability of the 
HMO; 
4. When the decision of the Association on arbitration of complaint is not 
honored by a HMO; 
5. When a HMO continuously violates the rules and regulations issued 
by the Department in implementing this Act as provided in Section 19 
hereof. 
SEC. 13. Grounds for Revocation of License. - The Department shall 
revoke the license of any Health Maintenance Organization, with strict 
adherence to due process, on the following grounds: 
1. Repealed violations of this Act by any HMO; 
2. Unjustified refusal to provide the health care services contracted for 
by a member as provided in the agreement; 
3. Impairment of the financial status of the HMO, as may be determined 
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by the Department during suspension based on paragraph 1 of 
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Section 12 hereof, after a fair appraisal by impartial actuaries and 
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financial consultants, such that even if allowed to continue to operate, 
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it can no longer provide the services it assumed under the agreement 
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4. Refusal to comply with decisions of the Department on cases 
submitted by the Association for arbitration. 
In all cases of revocation, the Department shall have the authority to 
assign the agreements of the HMO whose license was revoked, to other existing 
HMOs, in order to protect the rights derived by members from the agreements. 
SEC. 14. The following administrative sanctions are hereby imposed for 
violations that do not warrant suspension or revocation of license: 
(I) 
A fine of Ten Thousand Pesos (Pl0,OOO.OO) for the first violation of 
the provisions of this Act, Twenty Thousand Pesos (P20,OOO.OO) for 
the second; and Thirty Thousand Pesos (P30,OOO.OO) for the third 
violation. For the fourth violation of this Act the provision of Sec. 13, 
shall apply. 
(2) A fine of Fifty Thousand Pesos (PS0,000.00) every time the license of 
the HMO is suspended: Provided, That payment of this fine shall not 
absolve the HMO from its obligations under the agreements. 
(3) An order to freeze the assets and funds of the HMO suspended or 
revoked for the protection of investors, providers and members. 
The Amount that may be collected as fines shall be retained by the 
Department for its use in the information dissemination mentioned in the 
following section: Provided, That a separate account to be maintained by the 
Department for such purpose 
SEC. 15, Publicafion. - The Department shall inform the public by 
publishing periodically: 
1. List of licensed HMOs; 
2. Suspension and/or revocatio of the license of HMO copies of which 
shall be furnished to associations of the medical profession, hospitals 
and employers, who shall inform their members accordingly. 
SEC. 16. Present HMOs. - Health Maintenance Organizations registered 
with the Securities and Exchange Commission and have been in operation prior 
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to the effectivity of this Act shall continue to operate: Provided, That they shall 
apply for a new license with the Department within one year from the effectivity 
of this Act. 
SEC. 17. New License. - The Department shall grant the above HMOs 
their new licenses in accordance with this Act: Provided, That the existing 
agreements, the rights and obligations derived therefrom shall be respected: 
Provided, further, That the HMOs comply with the licensing requirements within 
one year. 
SEC. 
18. Appropriafions. - The amount 
necessary for 
the 
implementation of this Act shall be included in the General Appropriations Act of 
the year following its enactment and every year thereafter. 
SEC. 19. lrnplernenfing Rules and Regulations. - The Department of 
Health, through its Office for Health Facilities Standards and Regulations, in 
consultation with its actuarial and financial consultants and the Association of 
Health Maintenance Organizations in the Philippines, Inc. (AHMOPI), shall 
promulgate the rules and regulations necessary to implement this Act, within 
ninety (90) days from its approval. Such rules and regulations shall be furnished 
to HMOs and shall take effect upon publication in a newspaper of general 
circulation. 
SEC. 20. Separability Clause. - If any provision of this Act is declared 
unconstitutional or invalid, the other provisions not affected by such declaration, 
shall remain in full force and effect. 
SEC. 21. Repealing Clause. - All laws, decrees, ordinances, rules and 
regulations, executive or administrative orders or parts thereof inconsistent with 
this Act are hereby repealed, amended or modified accordingly. 
SEC. 22. Effecfivify. -- This Act shall take effect fifteen (15) days 
following its publication in at least two (2) leading newspapers of general 
circulation. 
Approved, 
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