THIRTEENTH CONGRESS OF THE REPUBLIC 
) 
'04 JIJ. -1 AI0 :I 1 
OF THE PHILIPPINES 
1 
First Regular Session 
1 
E 
E 
S. 3. No. 
Introduced by Senator Ramon Bong Revilla, Jr. 
E 
Article 11, Section 15 of the Constitution declares that the State shall protect and promote 
the rights to health of the people and instill health consciousness among them. Towards this end, 
the State shall endeavor to enhance the accessibility of afYordable health care services by 
encouraging the growth of medical/health service providers and by regulating their activities to 
prevent the commission of fraudulent acts inimical to the people. 
Pursuant to the constitutional mandate, this measure shall tap the participation of the 
private sector in providing, funding and managing Health Maintenance Organizations (HMOs). 
This will greatly assist the government in the efficient delivery of quality and cost-effective basic 
health care services. 
This proposed measure defines the following characteristics to qualify an entity as health 
maintenance organization (HMO) namely: organized system of providing and assuring health 
care services in a defined geographical area; a pre-agreed set of basic and supplemental health 
maintenance and treatment services; and must have an enrolled group of individuals paying a 
fixed periodic fee. 
To protect the rights of individuals dealing with HMOs, this measure provides the 
procedures and requirements for licensing. It likewise defines the grounds for suspension and 
revocation of their license to operate. 
In view of the foregoing, the immediate approval of this bill is earnestly urged 


T ~ ~ R T E E ~ T ~  
CONGRESS OF THE REPUBLIC 
) 
OF THE P ~ I L I P P I ~ E S  
) 
First Regular Session 
1 
E 
S. B. No. 
'04 
JUI. -1 
AI0 :1 1 
3- 
Introduced by Senator Ramon Bong Revilla, Jr. 
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 (HMOs) 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, government shall enhance accessibility to affordable health care 
services by recognizing and tapping the participation of the private sector in providing funding 
and managing the delivery of cost effective and quality health care services. Towards this end, it 
shall encourage the growth of health maintenance organizations (HMOs) and provide the 
regulatory framework that will ensure their sustainability and viability in order to protect the 
interest of the public. 


SEC. 3. 
a. 
Objectives. - In line with the above policy, this Act seeks to: 
Recognize I-IMOs as unique medical service providers that combine the financing, 
management and provision of health services and to encourage their growth. 
b. 
Establish the regulatory framework for HMOs that shall protect the rights of the 
buying public as well as the various sectors involved in the delivery of health care services. 
c. 
Promote the provision of quality health services and to improve the efficiency in 
delivery of health care services. 
d. 
e. 
Protect the rights of HMOs, their enrollees and health care service providers . 
Make people more health-conscious by making health care services readily 
available, accessible and affordable. 
SEC. 4. 
Definition of Terms- when used in this Code, the following terms shall 
mean: 
a. 
Actuary - a person with the necessary training, qualification and experience and a 
fellow of the Actuarial Society of the Philippines. She shall, among others, 
compute rates and reserves for health care plans on the basis of experience tables 
and determine the financial soundlessness of health care agreements and 
operations of HMOs. 
Agreement - a contract entered into by an HMO with a member or group of 
members or a corporation on behalf of its employees andior their dependents, for 
the former to provide or arrange to provide pre-agreed or designated health care 
services to the latter, for a fixed period of time and for a specified fee; 
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; 
Co-payment - the amount a member must play in order that she can receive a 
specific service which is not hlly prepaid. 
b. 
c. 
d. 


e. 
Corporation - a juridical person as defined by law, duly registered with the 
Securities Exchange Commission. 
Deductible - the amount an enrollee pays out of pocket before the health 
maintenance organizations begins to pay the cost associated with treatment. 
Department - the Department of Health (DOH) 
Commission - the Insurance Commission; 
Health Maintenance Organization (HMO) - a type of managed care organized in 
accordance with law 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 of health care services 
through managed health plans 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 other that fall under the definition of a 
managed health plan under paragraph (k) of this section. 
A health maintenance organization shall possess the following characteristics to 
qualify as HMO: 
1. 
f. 
g. 
h. 
1. 
An organized system of managing and assuring health care services in a 
defined geographical area; 
A pre-ageed set of basic and supplemental health maintenance and 
treatment services; 
2. 
3. 
Managed Care - a system of health care delivery that influences utilization and 
cost of services and measures performance with a goal to deliver quality and cost- 
effective health care; 
Managed Health Plan - a plan that covers health care services through an 
integrated and organized system of financing, delivery, and management of 
. Have enrolled group of individuals paying a fixed periodic fee. 
J. 
k. 


services to an enrolled population for a specific period of time on a fixed 
periodic fee; 
Member or Enrollee - an individual or a person who is part of a group or an 
employee andor dependents or a corporation, who entered into a contract with an 
HMO; 
Person - a natural or judicial person as defined by law. 
Provider- a health professional such as physician, dentist, nurse, midwife, 
physical therapist or health care professional’s group, or a health facility such as 
hospital, diagnostic clinic, pharmacy, licensed or authorized by the proper 
government agency to provide health care services. 
Participating or Accredited Provider - a provider as defined in paragraph (n) who 
under an express contract with, or is owned and operated by, a health 
maintenance organization (HMO) or with the latter’s contractor or subcontractor, 
has agreed to provide health care services to the HMO enrollees, with the right to 
payment, other than co-payment or deductible directly or indirectly from the 
HMO. 
Membership Fee - the amount of money paid by an individual member, group 
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. 
1. 
m. 
n. 
0. 
p. 
SEC. 5. 
Health Care Incentives - 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; Provided, That such 
equipment are 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 so as to reduce the cost of health care; 


3. 
The cost of health care membership fees that corporations or employers pay for 
the health care plans of their employees shall be deductible from the taxable income of said 
employers, as this will encourage employers to provide health care plans for the employees; 
4. 
Such other incentives that the Insurance Commission and 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. 
Registration. - An 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. 
Llcensure. - The Insurance Commission 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 
of this Act. M e r  registering with the Securities and Exchange Commission, said entities shall 
secure a license to operate as an HMO from the Insurance Commission. Existing HMOs at the 
time of the effectivity of this Act shall likewise secure a license to operate from the Insurance 
Commission in accordance with the Transitory Provisions provided herein. 
I 
The Commission 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 therefore shall immediately be made known to the applicant immediately. 
However, if the HMO will directly provide health care services such as medical 
consultation and/or treatment by their own employed medical professional, perform laboratory 
or diagnostic services , operate clinics or hospitals, they shall also secure license from the 
Department of Health for said facilities. 
SEC. 8. 
Licensure. - The Insurance Commission and Department of Health shall 
promulgate 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: 


a. 
b. 
C. 
d. 
e. 
f 
g. 
The miniiiium authorized and paid-up capitalization required. 
F nancial Statements/Projections for new HMOs. 
&ual 
Reports for existing HMOs. 
Qata on membership enrollment 
H$akh Care Services being offered. 
dographical area of operation 
S p h  other information or requirements that the Commission andor the 
Dkpartment may deem necessary. 
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These rebuirements may be amended to conform to the needs of the time and such 
requirements or i ,any amendment thereto shall be effective for a period of one year, subject to 
renewal by the 4 
mmission. 
Actuaries /Financiul Consultants. - To protect the potential and enrolled 
SEC. 9. 
Os, the Commission shall ensure that HMOs adhere to actuarially sound 
To achie 7' 
e these objectives, the Commission shall engage the services of actuaries andior 
financial consultants to analyze the financial status and the actuarial soundness of 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 date and 
reports are certified by either an actuary, financial consultant or external auditor. 
I 
members of 
practices and pos ess financial capabilities to render the services stipulated in their agreements. 
SEC. 10. 
Association. - All Health Maintenance Organizations shall for purposes of 
achieving unity in the industry, facilitating government regulation, mutual assistance among 
HMOs, self-regulation and quality competition, shall be encouraged to be a member of the 
existing association of Health Maintenance Organizations at the time of the enactment of this 
Act. 
SEC. 11. 
Arbitration by the Association and by the Commission. - Complainants 
that may be brought by members or providers or even by a HMO against another HMO shall be 


referred to the Association for arbitration. The Association shall refer such complaint to the 
grievance mechanism in the Association and shall be decided wthin thirty (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 Commission which shall assume jurisdiction over the case, and shall 
decide the case withm sixty (60) days. The decision of the Commission shall be final and 
executory, appealable to the Supreme Court only on question of law. 
SEC. 12. 
Groundsfor suspension of License. - The license to operate issued to 
HMOs may be suspended by the Commission, with strict adherence to due process, on the 
following grounds; 
1. 
When, based on the financial reports, continued operation of the HMO business is 
no longer financially sound 
2. 
3. 
When, without justifiable cause, agreements wth members are not honored, 
When the statements in the application for license or renewal thereof are found to 
be false, misleading, inadequate or incomplete such that the Department cannot ascertain the hue 
status from such statement, sufficient to arrive at an honest appraisal of the tme capability of .the 
HMO. 
4. 
When the decision of the Association or arbitration of complaint is not honored 
by a HMO. 
5. 
When a HMO continuously violates the rules and regulations issued by the 
Commission and the Department in implementing this Act as provided in Section 19 hereof 
SEC. 13. 
Grounds for Revocation of License. - The Commission shall revoke the 
license of any Health Maintenance Organization, with strict adherence to due process, on the 
following grounds. 
1. 
2. 
Repealed violations of this Act by an HMO. 
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 by the 
Commission during suspension based on paragraph 1 of Section 12 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. 
4. 
Refusal to comply with decisions of the Commission on cases submitted by the 
Association for arbitration. 
!% all cases of revocation, the Commission shall have the authority to assign the 
agreements of the HMO whose license was revoked, to other existing HMOs, or to order such 
applicable remedies in order to protect the rights derived by members from the agreements. 
SEC. 14. 
Penalties. - The following administrative sanctions are hereby imposed for 
violations of this Act: 
1. 
A fine of Twenty Thousand Pesos (P20,OOO.OO) for the first violation of the 
provisions of this Act, Thirty Thousand Pesos (P30,OOO.OO) for the second; and 
Fifty Thousand Pesos (P50,OOO.OO) for the third violation. For the fourth violation 
of this Act, the provision of Section 13, shall apply. 
A fine of One Hundred Thousand Pesos (PlO0,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 agreements it has contracted with enrolIees 
and/or participating or accredited providers. 
An order to freeze the assets and finds of the HMO suspended or revoked for the 
protection of investors, providers and members. 
2. 
3. 
j 
The amount that may be collected as fines shall be retained by the Commission for its use 
in the information dissemination mentioned in the following section: Provided, That a separate 
account be maintained by the Commission for such purpose. 
Violations committed by HMOs in the direct provisions of health care services, 
performance of laboratory or diagnostic services, operation of hospitals or clinics shall be subject 
to applicable rules and regulations of the Department of Health. 


SEG. 15. 
~ e ~ ~ t a ~ e ~ e n t  
of Revoked Licenses. - The Commission shall order the 
reinstatement of a suspended or revoked license upon reasonable showing that the ground for 
which the suspension or revocation was based has ceased to exist and that the HMO has 
sufficiently complied with the requirements the Commission may determine for such 
reinstatement. 
SEC. 16. 
Publication. - The Commission and the Department shall jointly inform 
the public by publishing periodically: 
1. 
List of licensed HMOs. 
2. 
Suspension andor revocation of the license of HMOs, copies of which shall be 
furnished to associations of the mechcal profession, hospitals and employers who 
shall inform their members accordingly. 
SEC. 17. 
Existing HMOs. - Health Maintenance Organizations registered with the 
Securities and Exchange Commission and the Department that 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 year from the effectivity of this Act. 
SEC. 18. 
New License. - The Commission 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. 
SEG. 19. 
Appruprfatium. - 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.20. 
Implementing Rules and Regulations. - The Commission and the 
Department of Health, in consultation with the concerned sectors, shall promulgate the mles and 


regulations necessary to implement this Act within Ninety (90) days from its approval. Such 
rules and regulations shall be furnished to HMOs and concerned sectors and shall take effect 
upon publication in a newspaper of general circulation. 
SEC. 21. 
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. 22. 
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. 23. 
Effectiviw. - This Act shall take effect fifteen (15) days following its 
publication in at least two (2) newspapers of general circulation. 
Approved,