THIRTEENTH CONGRESS OF THE REPUBLIC 
) 
OF THE BHlLlPPlNES 
) 
First Regular Session 
) 
S E N A T E  
S. No. 2 
* z  r 9  
< >  * 
. I  
. 
Introduced by Senator Flavier 
EXPLANATORY NOTE 
Health Maintenance Qrganizations (HMOs) have become an important 
component of our health care system. It complements the National Insurance 
Program by helping ensure that enrolled members are given medical care in 
designated health care pi-oviders. 
With the increase in the number of both the HMOs and people availing 
their services, there is a need to establish a regulatory framework to govern the 
operations of HMOs. This is both for the protection of the public as well as for 
the smooth operation of HMOs. 
As provided for in this bill, the Insurance Commission shall supervise and 
regulate the operations of HMOs. The Department of Health, on the other hand, 
will take care of the licenses needed should HMOs also directly provide health 
%are services. 
Given the importance of this measure, this representation seeks its 
immediate passage. 
R 


THIRTEENTH CONGRESS OF THE REPUBLIC 
) 
OF THE PHILIPPINES 
) 
First Regular Session 
1 
S E N A T  
S. No. 5 
8: -($ 
lnfroduced by Senator Flavier 
AN ACT 
GOVERNING 
THE 
OPERATIONS 
OF 
HEALTH 
MAINTENANCE 
ORGANIZATIONS, REGULATING THEIR ACTIVITIES, 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 (HMO) 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 
participation of the private sector in providing funding and managing the delivery 
of cost effective and quality health care services. 
Towards this end, the 
government shall provide the regulatory framework that will ensure the 
sustainability and viability of Health Maintenance Organizations (HMOs) in order 
to protect the interest of the public. 
SEC. 3. Objectives. - In line with the above policy, this Act seeks to: 
a) recognize HMOs as entities that combine financing management and 
provision of health services; 


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 care services; and 
d) protect the rights of HMOs, their enrollees, and health care service 
providers. 
SEC. 4. Definition of Terms. - When used in this Code, the following 
terms shall mean: 
a) Actuary - a person with the necessary training, qualifications and 
experience and a fellow of the Actuarial Society of the Philippines, or 
of a similar society, as may be determined by the Insurance 
Commission. S/He shall, among others, compute rates and reserves 
for health care plans on the basis of experience tables and determine 
the financial soundness of health care agreements and operations of 
HMOs; 
b) Agreement - a contract entered into by an HMO with a member or 
group of members or a corporation on behalf of its employees and/or 
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 - an organization of Health Maintenance Organizations 
recognized as the industry representative for purposes of achieving 
unity in the industry, facilitating government regulations, mutual 
assistance among HMOs, self-regulation and quality competition; 
d) Co-payment - the amount a member must pay in order that s/he can 
receive a specific service which is not fully pre-paid; 
c) 


Deductible - the amount an enrollee pays out-of-pocket before the 
health maintenance organizatior, (HMO) pays the cost associated with 
treatment ; 
Department - the Department of Health; 
Commission - the Insurance Commission; 
Health Maintenance Organization (HMO) - a facility 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. 
health maintenance organization shall possess the following 
characteristics to qualify as HMO: 
1) an organized system of managing and assuring health care 
services in a defined geographical area; 
2) a pre-agreed set of basic and supplemental health maintenance 
and treatment services; 
3) has enrolled group of individuals paying a fixed periodic fee. 
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 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 and/or dependents or a corporation who enters into a 
contract with an HMO; 


I) 
Provider - a health professionaj, such as a physician, dentist, nurse, 
midwife, physical therapist or health care professional group, or a 
health facility such as hospital, diagnostic clinic, medical clinic, 
pharmacy, licensed or authorized by the proper government agency to 
provide health care services; 
m) Participating or Accredited Provider - a provider as defined herein 
who, under and express contract with or is owned and operated by ah 
health maintenance organization (HMO), or with the latter’s contractor 
or subcontractor, has agreed tq provide health care services to the 
HMO eni-ollees, with the right to payment, other than co-payment or 
deductible directly or indirectly from the HMO. 
SEC. 5. Registration. -- An HMO legally organized as a juridical person 
shall be registered with the Securities and Exchange Commission, thus, shall be 
organized in accordance with the provisions of the Corporation Code. However, 
HMOs organized as cooperatives shall be registered with the Cooperative 
Development Authority of the Philippines. 
SEC. 6. Licensure. -- The Insurailce 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. After registration with the Securities and 
Exchange Commission and the Cooperative Development Authority, as the case 
may be, 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. 


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. 7. Licensure Requirements. -- The Insurance Commission and 
the Department of Health shall promulgate the requirements for licensure and 
renewal of license of HMOs based on the provisions of Sec. 6 of this Act. The 
requirements shall include, but not be limited to, the following: 
a) The minimum authorized and paid-up capitalization required; 
b) Financial Statements/Projections for new HMOs; 
c) Annual Statements for existing HMOs; 
d) Data on membership enrollment; 
e) Heath care services being offered; 
f) Geographical area of operation; 
g) Such other information or requirements that the Commission and/or 
the Department may deem necessary. 
These requirements may be amended to conform to the needs of the time, 
and such requirements or any amendment thereto shall be published in at least 
one (I) 
newspaper of general circulation. 
The license to operate granted under this Act shall be effective for a 
period of one (1) year, subject to renewal by the Commission. 


SEC. 8. Renewal of License. -- The Insurance Commission shall issue 
rules and regulations for the renewal of license of HMOs. 
SEC. 9. 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: 
a) When, based on the financial reports, continued operation of the HMO 
business is no longer financially viable; 
b) When, without justifiable cause, agreements with members are not 
honored; 
c) 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 true status from such statement, 
sufficient to arrive at an honest appraisal of the true capability of the 
HMO; 
d) When the decision of the Association on arbitration of complaint is not 
honored by an HMO; 
e) When an HMO continuously violates the rules and regulations issued 
by the Commission and the Department in implementing this Act. 
SEC. I O .  Revocation of License. -- The Commission shall revoke the 
license of any Health Maintenance Organization, with strict adherence to due 
process, on the following grounds: 
a) 
Repeated violations of the provisions of this Act or of the 
implementing rules and regulations issued; 
b) 
Unjustified refusal to provide the health care services contracted for 
by a member, as provided in the agreement; 


c) 
Impairment of the financial status of the HMO, as may be determined 
by the Commission during suspension based on paragraph I, 
Sec. 9 
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 services it assumed under the agreement with its 
members; 
d )  Refusal to comply with decisions of the Commission on cases 
submitted by the Association for arbitration. 
In 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. I I. 
Reinstatement of Suspended Licenses, -- The Commission 
shall order the reinstatement of a suspended license upon reasonable showing 
that the ground for which the suspension was based has ceased to exist, and 
that the HMO has sufficiently complied with the reqhirements the Commission 
may determine for such reinstatement. 
SEC. 12. ActuarieslFinanciaI Consultations. -- To protect the potential 
and enrolled members of 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: Provided, That data and reports 
are certified by either an actuary, financial consultant or external auditor. 
SEC. 13. 
Services of Non-HMO Accredited Health Providers. -- 
Every enrollee shall be given the opportunity to seek the best possible health 
care that will suit his individual need, provided that he/she shall be willing to pay 
whatever additional cost it may entail. 
Therefore, services of doctors not 
included in the list of HMO accredited healt’i providers shall be made available to 
enrollees. 
SEC. 14. Association. -- All Health Maintenance Organizations shall, 
for purposes of achieving unity in the industry, facilitating government 
regulations, mutual assistance among HMOs, self-regulation and quality 
competition, shall be encouraged to be a member of an Association of HeaJth 
Maintenance Organizations to be formed within sixty (60) days from the 
enactment of this Act. 
SEC. 15. Arbitration by the Association and the Commission. -- 
Complaints that may be brought by enrollees or providers or even by an HMO 
against another HM9 shall first be referred to the Association for arbitration. The 
Association shall refer such complaint to the grievance mechanism in the 
Association, and shall be decided within 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 within sixty (60) days. The 
decision of the Commission shall be final and executory, appealable to the Court 
of Appeals only on question of law: Provided, That the Insurance Commission, 
may, motu propio, assume original jurisdiction over complaints that are important 
and vital and which requires immediate resolution. 


SEC. 16. Visitorial Powers. -- The Commissioner or any of his duly 
designated representatives, shall have the power of visitation, audit and 
examination into the affairs, financial condition, and methods of doing business of 
all health maintenance organizations, and he shall cause such examination to be 
made at least once a year or wherever it may be deemed proper and necessary. 
Free access to the books, records and documents of the organization shall be 
accorded to the Commissioner, or to his representatives, in such manner that the 
Commissioner or his representatives may readily verify or determine the true 
affairs, financial copdition, and methods of doing business of such organization. 
In the course of such examination, the Commissioner or his duly designated 
representatives shall have authority to administer oaths and take testimony or 
other evidence on any matter relating to the affairs of the organization. 
SEC. 17. Administrative Sanctions. -- The following administrative 
sanctions are hereby imposed for violations of this Act: 
a) A fine of Twenty Thousand Pesos (P20,OOO.OO) for the first violation of 
the provisions of this Act or its implementing rules and regulations 
(IRRs); Thirty Thousand Pesos (P30,OOO.OO) for the second; and Fifty 
Thousand Pesos (P50,OOO.OO) 
for the third violation. For the fourth 
violation, the provision on revocation of license shall apply; 
b) A fine of One Hundred Thousand Pesos (P100,OOO.OO) every time the 
license of the HMO is suspended; Provided, That payment of this fine 
shall not absolve the HMO from ;ts obligations under the agreements it 
has contracted with enrollees and/or participating or accredited 
providers; 
c) An order to freeze the assets and funds of the HMO suspended or 
revoked for the protection of investors, providers and members. 


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 provision of health care 
services, performance of laboratory or dias nostic services, operation of hospitals 
or clinics shall be subject to applicable rules and regulations of the Department of 
Health. 
SEC. 18. Publication. -- The Commission and the Department shall 
jointly inform the public by publishing periodically: 
a) List of licensed HMOs; 
b) Suspension and/or revocation of the license of HMOs, copies of which 
shall be furnished to associations of the medical profession, hospitals 
and employers who shall inform tneir members accordingly. 
SEC. 19. Trahsitory Provisions. -- Health Maintenance Organizations 
(HMOs) registered with the Securities and Exchange Commission, Cooperative 
Development Authority, and the Department that has 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 six (6) months from the 
effectivity of this Act. The Commission shall grant the above HMOs their new 
licenses in accordance with this Act: 
Provided, further, That the existing 
agreements, the rights and obligations derived therefrom shall be respected: 
Provided, furthermore, That the HMOs comply with licensing requirements within 
six (6) months. 


Prior to the formation of an Association of Health Maintenance 
Organization, the insurance Commission shall handle arbitration proceedings for 
complaints lodged against HMOs. 
SEC. 20. 
Appropriations. 
-- 
The amount necessary for the 
implementation of this Act shall be included in the General Appropriations Act. 
SEC. 21. Implementing Rules and Regulations. -- The Commission 
and the Department, in consultation with the concerned sectors, 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 
concerned sectors, and shall take effect upon publication in a newspaper of 
general circulation. 
SEC. 22. 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.'23. 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. 24. Effectivity. -- This Act shall take effect fifteeq (15) days 
following its publication in at least two (2) newspapers of general circulation. 
Approved,