I
106TH CONGRESS
2D SESSION
H. R. 3690
To amend titles XVIII and XIX of the Social Security Act to assure the
financial solvency of Medicare+Choice organizations and Medicaid man-
aged care organizations.
IN THE HOUSE OF REPRESENTATIVES
FEBRUARY 16, 2000
Mr. PASCRELL (for himself, Mr. GRAHAM, and Mr. KLINK) introduced the fol-
lowing bill; which was referred to the Committee on Commerce, and in
addition to the Committee on Ways and Means, for a period to be subse-
quently determined by the Speaker, in each case for consideration of such
provisions as fall within the jurisdiction of the committee concerned
A BILL
To amend titles XVIII and XIX of the Social Security Act
to assure the financial solvency of Medicare+Choice or-
ganizations and Medicaid managed care organizations.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘HMO Solvency Act
of 2000’’.
SEC. 2. ASSURING THE SOLVENCY OF MEDICAID MANAGED
CARE ORGANIZATIONS.
(a) MEDICAID PROGRAM.—Section 1932(b) of the
Social Security Act (42 U.S.C. 1396u–2(b)) is amended
by adding at the end the following new paragraph:
‘‘(9) SOLVENCY-RELATED REQUIREMENTS.—
‘‘(A) PERIODIC
REPORTING.—Each med-
icaid managed care organization shall submit to
the State not less often than each quarter (or
such more frequent basis as a State may speci-
fy) such financial reports as may be necessary
to monitor the financial stability of the organi-
zation and provide an early warning of any risk
of insolvency. The State shall review the reports
so submitted and shall determine the appro-
priate course of action based upon such review.
‘‘(B) AUDITS.—
‘‘(i) 
PREAPPROVAL
INDEPENDENT
AUDIT
OF
OPERATIONS.—Before a State
enters into a contract under section
1903(m) (on and after the effective date of
this subparagraph) with a medicaid man-
aged care organization, the organization
shall provide for such on-site audit as the
Secretary shall require to evaluate its in-
ternal structure upon which the organiza-
tion’s financial projections are based. Such
audit shall be undertaken by an inde-
pendent entity (which may be an appro-
priate State agency) with such qualifica-
tions as the Secretary shall specify. The
audit shall include at least a review of the
organization’s claims processing capability
and utilization management and account-
ing functions and shall focus on the key
business risks the organization is facing,
including regulatory risks, competition,
provider network, pricing, claims proc-
essing environment, reserves, and informa-
tion system integrity.
‘‘(ii) PERIODIC
AUDITS
UNDER
A
STATE AUDIT PLAN.—Each medicaid man-
aged care organization shall provide for
such periodic audits as the State shall re-
quire under an audit plan designed by the
State and approved by the Secretary. The
frequency of such audits shall take into ac-
count changes in subcontracting by, and
ownership of, the organization.
‘‘(C) MINIMUM NET WORTH IN CASH OR
CASH EQUIVALENTS.—Each medicaid managed
care organization shall maintain, on an ongoing
basis, such minimum net worth (in cash or cash
equivalents) in such amount, form, and manner
as the State shall specify, consistent with guide-
lines established by the Secretary. The State
may permit the minimum net worth require-
ment to be met through a written guarantee by
a guarantor that meets such requirements as
the State shall specify consistent with such
guidelines.
‘‘(D) 
APPROVAL
OF
CERTAIN
SUB-
CONTRACTORS.—In the case of a medicaid man-
aged care organization that proposes to enter
into (on and after the effective date of this sub-
paragraph) a subcontract with another entity to
provide health care services to enrollees under
this title, to perform health care provider reim-
bursement under this title, or to carry out other
functions of the organization under this title
that have a direct impact on enrollees—
‘‘(i) the organization shall provide no-
tice (and a copy of the contract) to the
State at least 90 days before the date it is
entered into; and
‘‘(ii) before the subcontract takes ef-
fect, the organization shall provide for an
independent audit of the proposed subcon-
tractor to establish that the subcontractor
will be able to provide the services under
the subcontract and to guarantee its per-
formance financially in a manner satisfac-
tory to the State.
‘‘(E) 
REPORTING
OF
SIGNIFICANT
CHANGES IN OWNERSHIP OR SCOPE OF OPER-
ATIONS.—Each medicaid managed care organi-
zation shall provide for such timely reports to
the State of such significant changes in the
ownership of the organization, or of the scope
of operations of the organization, including by
takeover or merger, as the State shall require
in order to appropriately assure the continuing
solvency of the organization after the date such
changes take effect.
‘‘(F) FEDERAL SOLVENCY STANDARDS.—
Each medicaid managed care organization shall
comply with, and each State shall apply, such
additional solvency standards as the Secretary
may establish to carry out this paragraph.
‘‘(G) APPLICATION OF CERTAIN REQUIRE-
MENTS TO CONTROLLING ORGANIZATIONS AND
ENTITIES.—In the case of a medicaid managed
care organization that is substantially owned or
controlled by another organization or entity,
subparagraphs (A), (C), (E), and (as appro-
priate) (F) shall apply to such other organiza-
tion or entity as well as to the medicaid man-
aged care organization.’’.
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—Subject to paragraph (2),
the amendment made by subsection (a) applies as of
such date (not later than 6 months after the date
of the enactment of this Act) as the Secretary of
Health and Human Services shall specify.
(2) TRANSITION.—The Secretary—
(A) may delay the effective date of such
amendment in the case of a State that requires
the enactment of legislation (other than legisla-
tion appropriating funds) in order for the State
medicaid plan under title XIX of the Social Se-
curity Act to meet the additional requirements
imposed by such amendment; and
(B) may permit medicaid managed care or-
ganizations that are operating as of the effec-