FOURTEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
First Regular Session 
S.B. No. 
$?A 5 
Introduced by Senator Loren Legarda 
EXPLANATORY NOTE 
This bill seeks to encourage the establishment and growth of Health Maintenance 
Organizations (HMOs) in the Philippines to promote participation of the private sector in 
providing health care to Filipinos. 
Section 15, Article I1 of the 1987 Philippine Constitution provides that the State shall 
protect and promote the right to health of the people and instill health consciousness among 
them. Section 11, Article XI11 cf the same Constitution provides that the State shall endeavor to 
provide free medical care to paupers. 
Over the years, the growing population of the country, which is expected to reach 94 
million in 2010, and the minimal government spending for public health, have not been able to 
address the heaIth needs of Filipinos. Of the top ten causes of death and sickness, only four are 
not poverty-related. More than 10 million Filipinos have no access to potable water. More than 
30 per cent of Filipino children suffer from various stages of malnutrition. The costs of locally- 
available drugs and medicines are at least 30 to 50 per cent higher than retail costs in countries 
such iis India .Worse, more than 60 per cent of Filipinos have not heard of health insurance 
coverage, much less possess of the capacity to pay for such basic protection. 
Clearly, the State cannot do it alone. There is therefore a need to encourage private 
sector participation in addressing the health needs of our country. Such private participation 
can be initiated thru the establishment and regulation of health maintenance organizations. 
Under this bill, a health maintenance organization is an insurance company that sells 
fixed pre-paid health insurance policies 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 cost of health services with the end to make beneficial, effective, and/or 
necessary quality health care affordable to the public. 
The importance of State's intervention in this endeavor is crucial because it is only thru 
such intervention will the imposition of harsh unconscionable terms be avoided. That is why 
this proposed measure enumerates the operating guidelines for HMOs to address the alleged 
gross inequality of bargaining power that currently characterizes the HMO relationship with its 
members and health care providers. Moreover, for the protection of 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 approval of this bill is earnestly urged. 
LOREN LEGARDA 
Senator 


FOURTEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
First Regular Session 
. 
Introduced by Senator Loren Legarda 
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 
Organization Act of 2007". 
SECTION 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 
amor,a them. 
Pursuant to this policy, the government shall encourage the 
establishment and favorable operation of Health Maintenance Organizations (HMOs) 
by granting reasonable incentives to enhance accessibility to quality health care services 
through affordable health insurance policies. 
SECTION 3. Objectives - In line with the above policy, this ALt 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. 
c) 
members. 
d) Advance health consciousness among our people by promoting greater 
accessibility to quality health care through affordable health insurance 
policies. 
Recognize and protect the rights of HMOs, health care providers and 


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SECTION 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 0) 
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 cost 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 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 
operation of HMOs; 
c) 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; 
d)Clairn - a statement of services submittec' 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; 
e) Covered Services/Coverage - health care services to be delivered by a 
health care provider to a member as provided for in a health care policy; 
f) Deductible - the amount a member pays out-of-pocket before the HMO 
begins to pay the cost associated with treatment; 


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g) Health-Care Provider - a health professional such as physician, dentist, 
nurse, midwife, health care professional group and hospital, 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 &livery and compensation procedure 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. 
j) 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 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, 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'rhe right to payment, other than co-payment or deductible 
directly or indirectly from the HMO; 


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o) Specialist - a diplomate and/or Fellow of a Specialty Society recognized by 
the Philippine Medical Association (PMA). 
SECTION 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 fee, HMOs shall be 
granted the following incentives: 
1) The cost of HMO membership fees that corporations or employers pay for 
their employees shall be deductible from the taxable income of said 
employers; 
2) 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. 
SECTION 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. 
SECTION 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 Corpora+.ion ( 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 deny the application, the 
reasons thereof 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. 
SECTION 8. Licensure Requirements - The Insurance Commission and the 
Department of Health shd1 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 be limited to: 


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a) The minimum authorized and paid up capitalization; 
b) Financial Statement/projections for new HMOs; 
c) Annual Reports for existing HMOs; 
d) Data on membership enrollment; 
e) 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 c’dsh, 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 shaIl 
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 - The freedom of 
patients to choose their physician or health facility shall not be 
negotiated by any contract arrangement or procedure of a health 
maintenance organization. All members in HMOs shall be offered an 
out-of-nework option that will enable them to obtain, even at the 
member’s additional expense care from a health provider. Such out-of- 
network health providers shall have the right to HMO cornyensation, 
other than co-payment or deductible directly or indirectly from the 
HMO; 
2) To see a specialist of choice - An HMO patient may seek the services of 
a specialist who may not necessarily be affiliated with the HMO. 
3) Patient’s right to emergency care - A member who reasonably believes 
that he is suffering from an 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. 


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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 +terminations and allowing HMO bureaucrats, rather than 
properly qualified licensed physician/dentists to make “medically 
necessary“ decisions shall be made by physicians/dentists 
in 
accordance with generally accepted standards of medicalldental 
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 plan. 
Disputes may then be addressed to the Insurance Commission for 
arbitration as provided for in Section 10 hereof. HMOs that do not pay 
clean claim3 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 and multiplying factors (RUV) 
prevailing upon the effectivity date of the contract. 
C. Has a network of qualified and duty licensed health providers. 
SECTION 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 agreemmts. 
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. 


SECTION 10. Arbitration and Review - HMOs shall provide an internal 
mechanism where disputes between parties to a Health Care Policy or parties to an 
internal 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 medica1 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 judgment. The HMO Medical Review 
Committee shall ensure that reviews of medically nec-ssary 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. 
SECTION 11. Grounds for Suspension of License - The license to operate issued 
to an HMO 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, are 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 or are not 
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. 


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SECTION 12. Grounds for Revocation of License - The Commission shall revoke 
the license of any Health Maintenance Organization on the following grounds: 
a) Repeated violations of this Act by an HMO; 
b) Repeated suspension of HMO license; 
c) 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. 
SECTION 13. Administrative Sanctions - The following administrative sanctions 
are hereby imposed for vioIations that do not warrant suspension or revocation of 
license: 
1) A fine of Ten Thousand Pesos (PlO,OOO.OO) for the first violation of the 
provision of this Act, Twenty Thousand Pesos (P20,OOO.OO) for the second, 
and Thirty Thousand Pesos (P30,OOO.OO) for the third violation. The provision 
of Section 11 shall apply upon the fourth violation of this Act; 
2) A fine of Fifty Thousand Pesos (P50,OOO.OO) every time the license or'.rhe HMO 
is suspended : Provided, that, payment of this fine shall 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. 
SECTION 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 wnich shall 
be furnished to associations of the medical/ dental profession, hospitals and 
employers who shall inform their members accordingly. 
SECTION 15. Existing HMOs - All existing 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, 


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they shall apply for new license with the Commission within one (1) year from the 
effectivity of this Act. 
SECTION 16. New License - The Commission shall grant the above HMOs their 
new license 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. 
SECTION 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 general circulation. 
SECTION 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. 
SECTION 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. 
SECTION 20. Effectivity - This Act shall take effect fifteen (15) days following its 
publication in a1 least two (2) newspapers of general circulation. 
Approved,