EXPLANATORY NOTE
This  bill  was  originally  introduced  as  House  Bill  No.  2403  during  the  14th  Congress
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This bill seeks to encourage the establishment and growth of the Health Maintenance
Organizations  (HMOs)  in  the  Philippine  to  promote  participation  of  the  private  sector  in
providing health care to Filipinos.
Section  15,  Article  11  of the  1987  Constitution  provides that the  Senate  shall  protect
and  promote the right to health of the people and  instill  health  consciousness among them.
Section  11,  Article  XIIl  of 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 health  needs of Filipinos.  Of the top ten causes of death and sickness, only
four  are  not  poverty-related.  More  than  30  percent  of  Filipino  children  suffer from  various
stages of malnutrition. The costs of locally-available drugs and  medicines are at least 30 to
50 percent higher than  retail costs in countries such as  India. Worse,  more than 60 percent
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 need of our country.
Such   private   participation   can   be   initiated   thru   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.
GUEZ


NINETEENTH CONGRESS                  )
REPUBLIC OF THE PHILIPPINES    )
First Regular session                           )
HOUSE OF REPRESENTATIVES
Introduced by Representative Rufus a. Rodriguez
House Bi`II No..  E3i6
AN ACT
REGULATING THE ESTABLISHMENT AND OPERATIONS OF  HEALTH  MAINTENANCE
ORGANIZATIONS (HMOs), FOR OTHER PURPOSES
Be  it  enacted  by  the  Senate  and  the  House  of  Representatives  of  the  Philippines  in
Congress assembled:
SECTION  1.    Short  tit/e  -This  Act  Shall  be  known  as  the  "Health  Maintenance
Organization Act".
SEC.  2.    Stafemenf  of Po/i.cy -  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.  Objecfi.yes - ln 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.
SEC. 4.  Deffn/-fr-ons -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  ¢) 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) lt 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) lt has an enrolled group of individuals paying a fixed periodic fee.


b) Actuary -a business professional who analyzes the financial consequences of
risks  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;
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;
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.
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;
I)   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)   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;
o) Specialist - a diplomate and/or Fellow of a Specialty Society recognized  by the
Philippine Medical Association (PMA).


SEC. 5.  Hea/fh Care /ncenfi.yes -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.   Regi.strafi.on -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.    i/.censure -  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.      i/.censure   Requ/.remenfs   -   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:
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  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) Pat!ent'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-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 spect.a//.sf of Oho/.ce -An HMO patient may seek the services of a
specialist who may not necessarily be affiliated with the HMO.
3) Pat/.enf 's r/.ghf fo  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.
8. 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  -  F3errhittjmg  arhiitrary
health  policy  definitions  of  "medically  necessary"  to  control  all  coverage
determinations   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  medical/dental  practice  that  a  prudent
physician/dentist will make;
2) Prompt and/.usf compensaf/.on -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 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.
SEC.  9.   Acfoar7.es/F/-nanci-a/ Consq/fan fs - 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:
Provi.ded, That, such data and  reports are certified by either an actuary, financial consultant
or external auditor.
SEC.  10.    Arb/.frafi.on  and Rev/.ew -  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  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 Suspensi.on of i/'cense -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 Department of Health pursuant to Section 18 of this Act.
SEC.12.  Grounds for Revocafi.on of i/.cense -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.
SEC.  13.   Adm/.n/.sfrati.ve  Sancfi.ons -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 upon 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 :   Prov/.ded, 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 fees  and  penalties  collected  pursuant to this  section  shall  be  deposited  in  the
National Treasury as income of the general fund.
SEC.  14.   Pub//-cat/.on -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.    Ex/.sfi.ng  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:    Prov/.ded,  That,  they shall  apply for
new license with the Commission within one (1 ) year from the effectivity of this Act.
SEC.16.   Wew Li.cense -The  Commission  shall  grant the above  HMOs their new
license in accordance with this Act: Provt.bed, however, That existing agreements, rights and
obligations derived therefrom  shall  be respected:  Prov/.ded,  further,  That the  HMOs comply
with the licensing requirements within one (1 ) year.
SEC.11.   Implementing Rules and Guidelines -The lnsurance Comm.iss.ion 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.
SEC.   18.      Separab/.//.fy   C/ause   -   lf   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.   Repea//.ng C/ause -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.     Effecfi.yi.fy -This  Act  shall  take  effect  fifteen  (15)  days  following  its
publication in at least two (2) newspapers of general circulation.
Approved,