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THIRTEENTH CONGRESS OF THE REPUBLIC ) 
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OF THE PHILIPPINES 
1 
First Regular Session 
1 
S E N A T E  
Introduced by Senator FRANKLIN M. DRILON 
EXPLANATORY NOTE 
The Constitution, in Article 11, 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 . 
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Philippines. 
To pursue 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 
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 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. 


THIRTEENTH CONGRESS OF THE REPUBLIC 
1 
First Regular Session 
) 
OF THE PHILIPPINES 
1 
"04 ~ i l ~ k  
20 L)jc :3(- 
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Introduced by Senator FRANKLIN M. DRILON 
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 2004". 
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 among 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 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. 
c) Recognize and protect the rights of HMOs, health care providers and members. 
d) Advance health consciousness among our people by promoting greater accessibility 
to quality health care through affordable health insurance policies. 
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 


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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) 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; 
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; 
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; 
11) 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 delivery and compeiisation 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 ineinbers 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; 
in) Eiirollinent 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; 
0) 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 iiiceiitives: 
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 
Corporation ( PHIC ). After registering with the SEC, said entities shall secure a license to 


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operate as ail 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 Coinmission 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 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 be limited to: 
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a) The iniiiimum authorized and paid up capitalization; 
b) Financial Statement/proj ections for new HMOs; 
c) Aiiiiual 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 
discontiiiuance of the Health Maintenance Organization; 
11) Any deposit of cash, or guaranty or minimuin 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 - 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 
ineinbers 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. 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) 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 


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4) Pakient’i right to Grieva& and external review program - Members of an . 
HMO shall be granted the right to dispute coverage denials on the basis of 
“medically necessary’’ decisions b 
dent Review Committee as 
provided for in S 
B. Guarantees in HeaIt 
1) Physician ’s/Denti 
with the prevailing standar 
definitions of “medically necessary” to control all coverage determinations and 
allowing HMO bureaucrats, rather than properly qualified licensed 
physiciaddentists to make “medically necessary” decisions shall be made by 
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physiciaiis/dentists in accordance with generally accepted standards of 
medical/dental practice that a prudent physiciaddentist 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 claims within the thirty (30) 
day window may be Iiable 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/FinanciaZ 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 
financia1 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. 
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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 
s unresolved, a 
member, health .provider 
ommissibn for 
biiidiiig arbitratioh. However, 
be.inedica1 in nature 
or requiring' a 
Medical. Revie 
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view of medicallyrn ' 
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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 upoii 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. 
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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 ail HMO continuously violates the rules and regulations issued by the 
Coininissioii and the Department of Bealth pursuant to Section 18 of this Act. 
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 
Coinmission 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 violations that do not warrant suspension or revocation of license: 
1) A fine of Ten Thousand Pesos (P10,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 of the 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 revolted 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 which sliall be 
fh-nislied to associations of the medical/dental profession, hospitals and employers 
who shall inform their members accordingly. 
SECTION 1 5. 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, they shall apply for new license ' 
with the Commission within one (1) year from the effectivity of this Act. 
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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 j 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 sliall take effect upon publication in a newspaper of general circulation. 


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SECTION 18. 
Separability Clause - If any provision of this Act is declared 
uiiconstitutional or invalid, the other provisions not affected by such declaration shall remain in 
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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. Effictivity - This Act shall take effect fifteen (15) days following its 
publication in a1 least two (2) newspapers of general circulation. 
Approved,