Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Philippines

FIFTEENTH CONGRESS
First Regular Session

HOUSE BILL NO. 1197

INTRODUCED BY: HON. MARCELINO “MARCY” R. TEODORO.

EXPLANATORY NOTE

Section 15, Article Il of the 1987 Constitution states that “(t}he State shall protect and
promote the right to health of the ‘people and instill health consciousness among them’
Moreover, the state is cognizant of the less fortunate Filipinos who could not afford the
expensive costs of medical services and so the budget allocated for the Department of Health
is included in the top 10 priorities of the country. Hence, this bill proposes the establishment
and growth of the Health Maintenance Organization (HMOs) in the Philippines in order to
promote participation of the private sector in catering the needs of the Filipinos in terms of
health services.

Much has been said that the responsibility of the state is to protect and provide the
needs of its people. It has created different departments and agencies that would give aid to
the Filipinos. However, with the growing population in the country, the state needs to give
more efforts in order to help the people.

From this perspective, the state cannot do its task alone. Hence, in this bill, it
encourages the private sector to give a hand in addressing the health needs of the Filipino
people. In return, the bill provides incentives for the companies to be able for them to continue
the good deed which is stated under Section 5.

Stated in 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.

State intervention is very important in this endeavor because it is only thru this manner
that the imposition of unconscionable or abusive actions would be avoided. Hence, with this
given dilemma, this proposed bill enumerates the operating guidelines for HMOs to address
the asserted gross inequality of bargaining power that currently characterizes the HMO
relationship with its members and health care providers. Also, the protection of HMO
members and health care providers and the establishment and operations of the Health
Maintenance Organizations shall be regulated and supervised by the Insurance Commission
and the Department of Health

In view of the propositions stated above, the approval of this bill is earnestly requested,

Aiwa: Tehan—

MARCELINO “MARCY” R. TEQDORO
Representative, 1* District
City of Marikina


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Philippines

FIFTEENTH CONGRESS
First Regular Session

1197
HOUSE BILL NO.

INTRODUCED BY: HON. MARCELINO “MARCY” R. TEODORO

AN ACT
REGULATING THE ESTABLISHMENT AND OPERATIONS OF HEALTH MAINTENANCE
ORGANIZATIONS (HMOs) AND FOR OTHER PURPOSES.

Be it enacted by the Senate and 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 2010”

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 reasonable 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;

(c) Recognize and protect the rights of HMOs, health care providers and members; and

(d) Advance health consciousness among our people by promoting greater accessibility to
quality health care through affordable health insurance policies.

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

(a) ‘Health Maintenance Organization (HMO)" 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 preagreed 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: and

(3) Ithas an enrolled group of individuals paying a fixed periodic fee.

(b) “Actuary” a business professional who analyzes the financial consequences of risk with


the necessary training, qualification and experience and a fellow of the Actuarial Society of
the Philippines or in any internationally recognized association or society of actuaries (SOA).

He shall, among others, determine the financial soundness of health care agreements,
evaluate the likelihood of events, design creative ways to reduce the likelihood and decrease
the impact of adverse events that may actually occur in the 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;

() “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.

(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
delivery 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.

() “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 organizations of the providers giving care, and the covered benefits tied to
managed care rules.

(k) “Medically necessary services” 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.

()) "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
preagreed set of heath 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)


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 fee, domestic corporations, individuals and resident
corporations shall be allowed to deduct the cost of HMO membership fees from the taxable
income of said employers.

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 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.

SEC. 8. Licensure Requirements. — The Commission and the Department of Health (DOH)
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:

(a) The minimum authorized and paid-up capitalization;

(b) Financial statements/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
HMO;

(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 DOH shall accredit HMOs after the
Secretary has determined that the applicant:

(1) Guarantees its members fundamental patient's rights, to include among others:

(i) Patient's right to choose physician or facility — The freedom of patients to choose
their physician or health facility shall not be negotiated by any contract arrangement or
procedure of an HMO.

All 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. Such out-
of-network health providers shall have the right to HMO compensation, other than
copayment or deductible directly or indirectly from the HMO.

(ii) 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.

(iii) 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.

(iv) 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.

(2) Guarantees in health care providers:
(i) 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
“medically 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.

(ii) 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 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 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) and multiplying factors prevailing upon the effectivity date of the
contract

(3) 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 the 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 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 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 judgment. 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
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 an HMO
may be suspended by the Commission, after due notice, examination and hearing, 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 DOH pursuant to Section 17 of this Act.

SEC. 12. Grounds for Revocation of License. - The Commission shall revoke the license of
any HMO 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 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:

(a) 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 upon the fourth
violation of this Act;

(b) A fine of Fifty thousand pesos (P50,000.00) 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 agreement;

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

The fees and penalties collected pursuant to this section shall be deposited in the National
Treasury as income of the General Fund.

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

(a) List of duly licensed HMOs in good standing;

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

SEC. 15. Existing HMOs. — Alll existing HMOs duly registered with the SEC 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.

SEC. 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.
SEC. 17. Implementing Rules and’ Guidelines. - The Commission and the DOH 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. 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 general circulation.

Approved,