Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

THIRTEENTH CONGRESS
First Regular Session

HOUSE BILLNo.__42

Introduced by: Ht

EMILIO C. MACTAS IT

EXPLANATORY NOTE

The Constitution, in Article II, Section 15, declares that the State shall protect and
promote the right to health of the people and instill consciousness among them. Towards
this end, the State shall endeavor to enhance the accessibility of quality health care
services by encouraging the establishment and growth of Health Maintenance
Organizations (HMOs) in the Philippines.

In pursuance with this explicit constitutional mandate, this bill proposes to grant
Health Maintenance Organizations reasonable incentives to encourage the participation
of the private sector in the government’s endeavor to make health care available to all. It
also seeks to establish the operating guidelines for HMOs to rectify the gross inequality
of bargaining power that currently characterizes the HMO relationship with its members
and health care providers. Such adverse situation has resulted in the following:

1) Buyers of Health Insurance (members) left without any insurance
coverage after the HMO simply closes down;

2) Members unable to avail of any health benefits if their physician of choice
is a non-participating provider;

3) Members unable to contest health coverage denials;

4) Members” access to specialist and emergency services restricted;

5) Doctors unable to demand prompt compensation;

6) Doctors compelled to accept compensation rates of 1988;

7) Doctors’ medical decisions heavily influenced or overruled by HMO

bureaucrats.



It is thus clear from the foregoing that this proposed measure also intends to
equalize the bargaining power of the components in managed care if only to avoid the
imposition of harsh unconscionable terms arising out of such inequity.

It is important to note that this measure, once approved, will greatly benefit both
the patients and the doctors as it will confer basic patients’ rights to HMO members and
will create an environment where professional integrity of physicians will not be strained

or jeopardized.

Moreover, for the protection of the HMO members and health care providers, the
establishment and operations of the Health Maintenance Organizations (HMOs) shall be
regulated and shall be under the supervision of the Insurance Commission.

In view of the foregoing, the immediate ay f this bill is earnestly urged.

Representative
econd District, Negros Oriental


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

THIRTEENTH CONGRESS
First Regular Session

HOUSE BILL No. 42

Introduced by: HON. EMILIO C. MACIAS II

AN ACT
REGULATING THE ESTABLISHMENT AND OPERATIONS OF HEALTH
MAINTENANCE ORGANIZATIONS (HMOs), PROVIDING THEM
INCENTIVES AND FOR OTHER PURPOSES

Be it enacted by the Senate and the House of Representatives of the
Philippines in Congress assembled:

SECTION 1. Short Title. - This Act shall be known as the “Health Maintenance
Organizations Act of 2004”.

SEC. 2 Statement 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, the government shall encourage the establishment
and favorable operation of Health Maintenance Organizations (HMOs) by granting
teasonable incentives to enhance accessibility to quality health care services through
affordable health insurance policies.

SEC. 3. Objectives. - In line with the above policy, this Act seeks to:

a) Recognize HMOs as unique health care insurance entities that
combine the financing, management and coordination of health
services and to encourage their growth by granting them reasonable
incentives.

b) Establish the regulatory framework for HMOs.

©) Recognize and protect the rights of HMOs, health care providers and
members.

4d) Advance health consciousness among out people by promoting greater
accessibility to quality health care through affordable health insurance



SEC. 4. Definitions. - When used in this Act, the following terms shall mean

a) Health Maintenance Organization - an insurance company organized
in accordance with the provisions of the Corporation Code of the
Philippines that sells fixed pre-paid health insurance policies as
defined in paragraph (j) of this section to the public. It coordinates the
delivery of pre-agreed or designated health care services to its
members through a network of health care providers for a fixed
periodic fee and for a specified period of time. Through managed care,
it influences the utilization and costs of health services with the end to
make beneficial, effective, and/or necessary quality health care
affordable to the public,

The HMO shall possess the following functional characteristics:

1) It uses an organized system called and managed care to
coordinate the delivery of health services to its members
through health care providers in a defined geographical area,

2) It contracts the services of health care providers to deliver
health care services to its enrollees and/or their dependents as
their agreement may stipulate;

3) It has an enrolled group of individuals paying a fixed periodic
fee.

b) 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;

¢) Co-Payment - a charge which may be collected directly by a health
care provider from a member in accordance with the member's
health care policy;


4) Claim - a statement of services submitted to an HMO by a health

care provider following the provision of Covered Services to a

member that shall include diagnosis or diagnoses and itemization

of services and treatment provided to the member;

Covered Services/Coverage - health care services to be delivered

by a health care provider to a member as provided for in a heaith

care policy;

) Deductible - the amount a member pays out-of-pocket before the
HMO begins to pay the cost associated with treatment;

g) Health Care Provider - a health professional such as physician,
dentist, nurse, midwife, health care professional group and
hospitals, duly licensed by the proper government agency to
provide active health care services;

h) Health Care Provider Contract - a contract between an HMO and a
health care provider for the latter to deliver or provide health care
services to members of the former. It includes a schedule of
Covered Services and compensations and specifies all other terms,
conditions, limitations, exclusions, benefits, rights and obligations
thereof to which the HMO and health care provider are subject.

i) Health Care Policy - an insurance policy comprising an individual
set of health service detivery and compensation procedures offered
as a Managed Care product of an HMO to its members. It specifies
Covered Services and all other terms, conditions, limitations,
exclusions, benefits, rights and obligations thereof to which the
HMO and members are subject. It may be in the form of a
‘Comprehensive HMO Policy, Preferred Provider Policy, Managed
Indemnity, Self-Insured Policy or Third Party Administration
Policy.

°)

i) Managed Care - a complex system that involves the active
coordination of, and the arrangement for, the provision of health
services and coverage of health benefits. It involves oversight of
the delivery of health care services, contractual relationships and
organization of the providers giving care, and the covered benefits
tied to managed care rules;



k) Medically Necessary Services - refer to health care services that a
reasonably prudent physician would deem necessary for the
diagnosis or treatment of illness or injury or to improve the
functioning of a malformed body part of a member;

1) Member - an insured individual or a part of a group or an
employee of a corporation and his dependents, who entered into a
contract of health insurance with an HMO;

m) Enrollment Fee - the amount of money paid to an HMO by an
individual member, group or corporation on behalf of its
employees and the latter’s dependents, in payment for a pre-agreed
set of health services, for a specific period of time,

n) Participating Provider - a health care provider, who, under a Health
Care Provider Contract, has agreed to provide health care services
to the HMO members, with the right to payment, other than co-
payment or deductible directly or indirectly from the HMO.

SEC. 5. Health Care Incentives. - To tap and encourage private sector
participation in the government's thrust to make health services accessible to the low
income sectors of the population through affordable enrollment fees, HMOs shall be
granted the following incentives:

1) Fifty percent (50%) reduction of customs duties for importation of
medical equipment to be used in health care services of HMOs:
Provided, That, such equipment shall be used exclusively by the HMO
and not for resale;

2) Exemption from percentage tax, documentary stamp tax and value
added tax on all health care agreements;

3) The cost of HMO membership fees that corporations or employers pay
for their employees shall be deductible from the taxable income of said
employers;

4) Such other incentives that the Insurance Commission may deem
proper to recommend, subject to the concurrence of the Department of
Finance and approved by the President of the Philippines.


SEC. 6, Registration. - An HMO shall be legally organized as a juridical person
and shall be registered with the Securities and Exchange Commission, hereinafter
referred to as the SEC.

SEC. 7, Licensure. - The Insurance Commission, hereinafter referred to as the
Commission, shall supervise and regulate the operations of all HMOs and all other
entities that possess the functional characteristics of HMOs, except the Philippine Health
Insurance Corporation (PHIC). After registering with the SEC, said entities shall secure a
license to operate as an HMO from the Commission. All HMOs existing at the time of
effectivity of this Act shall likewise secure a license to operate from the Commission.

The Commission shall, upon receipt of a completed application for a license to
operate, provide a sixty (60) day period for public comment. As soon as the period has
lapsed and after thorough review, it shall either approve or disapprove the application. In
case the application is not approved, the reasons therefor shall immediately be known to
the applicant. The license to operate granted under this Act shall be effective for one (1)
year, subject to renewal by the Commission.

SEC. 8. Licensure Requirements. - The Insurance Commission and the
Department of Health shall prescribe the requirements for licensure and renewal of
license of HMOs based on the provisions of Section 7 of this Act. The requirements shall
include but not limited to:

a) The minimum authorized and paid up capitalization;

b) Financial Statement/projections for new HMOs;

c) Annual Reports for existing HMOs;

4) Data on membership enrollment,

©) Geographical area operation;

f) Health policies being offered;

g) Arrangements for ensuring the payment of the cost of health care services or

the provision for automatic applicability of an alternative coverage in the
event of discontinuance of the Health Maintenance Organization;

h) Any deposit of cash, or guaranty or minimum restricted reserves which the
Commissioner, by regulation may adopt to assure that the obligations to
subscribers and providers will be performed;

i) Philippine Health Insurance Corporation (PHIC) Accreditation;



j) Department of Health HMO Accreditation - The Department of Health
shall accredit HMOs after the Secretary has determined that the
applicant:

‘A. Guarantees its members fundamental patient’s rights, to include
among others:

1) Patient’s right to choose physician or health facility - AU
members in HMOs shall be offered an out-of-network option
that will enable them to obtain, even at the member’s
additional expense care from a health provider outside the
HMOs’ network of participating providers. Such out-of-
network health providers shall have the right to HMO
compensation, other than co-payment or deductible directly or
indirectly from the HMO;

2) Patient's right to see a specialist - All health policies must
guarantee direct access to an obstetrician/gynecologist for
women and access to a pediatrician for children as their
Primary physician;

3)

Patient’s right to emergency care - A member who reasonably
believes that he is suffering from am emergency condition has
the right to seek emergency care from the nearest emergency
department without first pre-authorizing or pre-certifying the
care with their HMO;

4)

Patient's right to Grievance and external review program -
Members of an HMO shall be granted the right to dispute
coverage denials on the basis of “medically necessary”
decisions before an independent Review Committee as
provided for in Section 10 hereof.


B. Guarantees in Health Care Providers:

1) Physician's/Dentist’s full freedom to manage and treat
‘patients in accordance with the prevailing standard of care
- Permitting arbitrary health policy definitions of
“medically necessary” to control all coverage
determinations and allowing HMO bureaucrats, rather than
properly qualified licensed physicians/dentists to. make
“qnedically necessary” decisions shall be made by
physicians/dentists in accordance with generally accepted
standards of medical/dental practice that a prudent
physician/dentist will make;

2) Prompt and just compensation - Health care providers shall
be paid their just professional/facility fees within thirty (30)
days from receipt of the latter’s written or electronic claim.
In the event that such claim is not approved, the reasons
therefor shall be made known to the provider within seven
(7) days after receipt of such written or electronic claim.
Disputes may then be addressed to the Insurance
Commission for arbitration as provided for in Section 10
hereof, HMOs that do not pay clean claims within the thirty
(30) day window may be liable for suspension of its license
to operate and additionally will be required to pay interest
at a rate to be determined by the Insurance Commission.
Professional fees must be in accordance with the Philippine
Medical Association’s/Philippine Dental Association’s
latest schedule of fees and latest Relative Unit Values
(RUV) prevailing upon the effectivity date of the contract.

C. Has a network of qualified and duly licensed health providers.

SEC. 9, Actuaries/Financial Consultants. - To protect the potential and enrolled
members of the HMOs, the Commission shall ensure that HMOs adhere to actuarially
sound practices and possess financial capabilities to render the services stipulated in their
agreements.


To achieve these objectives, the Commission 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 Commission shall require from HMOs such additional data and reports it
deems necessary: Provided, That, such data and reports are certified by either an actuary,
financial consultant or external auditor.

SEC. 10. Arbitration and Review. - HMOs shall provide an internal mechanism
where disputes between parties to a Health Care Policy or parties to a Health Care
Provider Contract may be resolved in an expeditious manner. In the event that the dispute
is unresolved, a member, health provider or an HMO may elevate the case directly to the
Commission for binding arbitration. However, if the Commission determines the conflict
to be medical in nature or requiring a review of medically necessary decisions, the case
shall be referred to an HMO Medical Review Committee to be constituted by the DOH
for judgement. The HMO Medical Review Committee shall ensure that reviews of
medically necessary decisions must be made only by truly independent licensed
physicians familiar with the medical condition or treatment in question and of the same
specialty as the treating physician. Such complaints or disputes shall be decided upon
within thirty (30) days and the decision shall be final and executory. All other complaints
that remain with the Insurance Commission for arbitration shall be decided upon within
sixty (60) days. The decision of the Commission shall be final and executory, appealable
to the Supreme Court only on question of law.

SEC. 11. Grounds for Suspension of License. - The license to operate issued to
HMOs may be suspended by the Commission on the following grounds:

a) When, based on financial reports, continued operation of the HMO business is
no longer financially sound;

b) When agreements with members are not honored;

c) When contracts with health care providers, including but not limited to prompt
and just compensation for health services rendered or violated;

d) When the statements in the application for license or renewal thereof are
found to be false, misleading, inadequate or incomplete such that the
Commission cannot ascertain the true status from such statement, sufficient to
arrive at an honest appraisal of the true capability of the HMO;


e) When the decision of the Commission on cases for arbitration is not honored
by an HMO;

f) When the decision of the HMO Review Committee is not honored by an
HMO;

g) When an HMO continuously violates the rules and regulations issued by the
Commission and the Department of Health pursuant to Section 18 of this Act;

SEC. 12. Grounds for Revocation of License. - The Commission shall revoke the
license of any Health Maintenance Organization on the following grounds:

8) Repeated violations of this Act by an HMO;

b) Repeated suspension of HMO license;

©) Impairment of the status of the HMO, as may be determined by the Insurance
Commission during suspension based on paragraph (a) of Section 11 hereof,
after a fair appraisal by impartial actuaries and financial consultants, such that
even if allowed to continue to operate, it can no longer provide the services it
assumed under the agreement with its members.

SEC. 13. Administrative Sanctions. - The following administrative sanctions are
hereby imposed for violations that do not warrant suspension or revocation of license:

1) A fine of ten thousand pesos (P10,000.00) for the first violation of the
provision of this Act, Twenty thousand pesos (P20,000,00) for the second, and
thirty thousand pesos (P30,000.00) for the third violation. The provision of
Section 11 shall apply for the fourth violation of this Act;

2) A fine of fifty thousand pesos (P50,000.00) every time the license of the
HMO is suspended: Provided, That, payment of this fine shail not absolve the
HMO from its obligations under the agreement;

3) An order to freeze the assets and funds of the HMO suspended or revoked for
the protection of investors, providers and members.

‘The Commission shall retain the amount that may be collected as fines for its use
in the information dissemination mentioned-in the immediately succeeding section,
Provided, That, a separate account be maintained by the Commission for such purpose.


SEC. 14 Publication, - The Commission shall periodically publish in a
newspaper of general circulation the following:

1) List of duly licensed HMOs in good standing,

2) Suspension and/or revocation of the license of HMOs, copies of which shall
be furnished to associations of the medical/dental profession, hospitals and
employers who shall inform their members accordingly.

SEC. 15. Existing HMOs. - All exisiting Health Maintenance Organizations duly
registered with the Securities and Exchange Commission and have been in operation
prior to the effectivity of this Act shall continue to operate: Provided, That, they shall
apply for a new license with the Commission within one (1) year from the effectivity of
this Act.

SEC. 16. New License. - The Commission shall grant the above HMOs their new
licenses in accordance with this Act: Provided, however, That existing agreements,
rights and obligations derived therefrom shall be respected: Provided, further, that the
HMOs comply with the licensing requirements within one (1) year.

SEC. 17. Implementing Rules and Guidelines, - The Insurance Commission and
the Department of Health 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
goncral circulation,

SEC. 18. 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. 19. 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. 20. Effectivity. - This Act shall take effect fifteen (15) days following its
publication in at least two (2) newspapers of generat circulation.

Approved.