Document:

exv4w2

 

EXHIBIT 4.2

Execution Version

 

 

DISCOVER CARD EXECUTION NOTE TRUST

Issuer

and

U.S. BANK NATIONAL ASSOCIATION

Indenture Trustee

CLASS B(2007-2) TERMS DOCUMENT

Dated as of August 31, 2007

to

INDENTURE SUPPLEMENT

Dated as of July 26, 2007

for the DiscoverSeries Notes

to

INDENTURE

Dated as of July 26, 2007

 

 

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page
	 

	 	ARTICLE I	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Definitions and Other Provisions of General Application	 	 	 	 
	 
	 	 	 	 	 	 
	Section 1.01.

	 	Definitions
	 	 	1	 
	Section 1.02.

	 	Representations and Warranties of Issuer
	 	 	7	 
	Section 1.03.

	 	Representations and Warranties of Indenture Trustee
	 	 	7	 
	Section 1.04.

	 	Limitations on Liability
	 	 	8	 
	Section 1.05.

	 	Governing Law
	 	 	8	 
	Section 1.06.

	 	Counterparts
	 	 	8	 
	Section 1.07.

	 	Ratification of Indenture and Indenture Supplement
	 	 	8	 
	 
	 	 	 	 	 	 
	 

	 	ARTICLE II	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	The Class B(2007-2) Notes	 	 	 	 
	 
	 	 	 	 	 	 
	Section 2.01.

	 	Creation and Designation
	 	 	9	 
	Section 2.02.

	 	Adjustments to Required Subordinated Percentages and Amount
	 	 	9	 
	Section 2.03.

	 	Interest Payment
	 	 	9	 
	Section 2.04.

	 	Notification of LIBOR
	 	 	10	 
	Section 2.05.

	 	Payments of Interest and Principal
	 	 	10	 
	Section 2.06.

	 	Form of Delivery of Class B(2007-2) Notes; Depository; Denominations
	 	 	10	 
	Section 2.07.

	 	Delivery and Payment for the Class B(2007-2) Notes
	 	 	11	 
	Section 2.08.

	 	Targeted Deposits to the Accumulation Reserve Account
	 	 	11	 
	Section 2.09.

	 	Additional Issuances of Notes
	 	 	11	 
	 
	 	 	 	 	 	 
	 

	 	Exhibit	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Exhibit A            Form of Class B Note	 	 	 	 

 

 

     THIS CLASS B(2007-2) TERMS DOCUMENT (this “Terms Document”), by and between DISCOVER CARD
EXECUTION NOTE TRUST, a statutory trust created under the laws of the State of Delaware (the
“Issuer”), and U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and
existing under the laws of the United States of America, as Indenture Trustee (the “Indenture
Trustee”), is made and entered into as of August 31, 2007.

     Pursuant to this Terms Document, the Issuer shall create a new Tranche of Class B Notes of the
DiscoverSeries and shall specify the principal terms thereof.

ARTICLE I

Definitions and Other Provisions of General Application

     Section 1.01. Definitions. For all purposes of this Terms Document, except as otherwise
expressly provided or unless the context otherwise requires:

     (1) the terms defined in this Article have the meanings assigned to them in this Article, and
include the plural as well as the singular;

     (2) all other terms used herein which are defined in the Indenture Supplement or the
Indenture, either directly or by reference therein, have the meanings assigned to them therein;

     (3) all accounting terms not otherwise defined herein have the meanings assigned to them in
accordance with generally accepted accounting principles and, except as otherwise herein expressly
provided, the term “generally accepted accounting principles” with respect to any computation
required or permitted hereunder means such accounting principles as are generally accepted in the
United States of America at the date of such computation;

     (4) all references in this Terms Document to designated “Articles,” “Sections” and other
subdivisions are to the designated Articles, Sections and other subdivisions of this Terms
Document; The words “herein,” “hereof” and “hereunder” and other words of similar import refer to
this Terms Document as a whole and not to any particular Article, Section or other subdivision;

     (5) in the event that any term or provision contained herein shall conflict with or be
inconsistent with any term or provision contained in the Indenture Supplement or the Indenture, the
terms and provisions of this Terms Document shall be controlling, but solely with respect to the
Class B(2007-2) Notes;

     (6) each capitalized term defined herein shall relate only to the Class B(2007-2) Notes and
no other Tranche of Notes issued by the Issuer;

     (7) “including” and words of similar import will be deemed to be followed by “without
limitation”; and

     (8) for purposes of determining any amount or making any calculation hereunder, such amount
or calculation, (x) if specified to be as of the first day of any Due Period, shall (a)

 

 

include any Notes issued during such Due Period as if such Notes had been outstanding on the first day of such
Due Period and (b) give effect to any payments, deposits or other allocations made on the
Distribution Date related to the prior Due Period, and (y) if specified to be as of the close of
business on the last day of any Due Period shall give effect to any payments, deposits or other
allocations made on the related Distribution Date.

     “Accumulation Amount” means $9,583,333.34; provided, however, if the commencement of the
Accumulation Period is delayed in accordance with Section 4.02 of the Indenture Supplement, the
Accumulation Amount shall be determined in accordance with the definition of “Accumulation Amount”
in the Indenture Supplement.

     “Accumulation Commencement Date” means September 15, 2009 (or, if such day is not a Business
Day, the next succeeding Business Day), or such later date as the Calculation Agent on behalf of
the Issuer determines in accordance with Section 4.02 of the Indenture Supplement.

     “Accumulation Period” has the meaning set forth in the Indenture Supplement.

     “Accumulation Period Length” means 12 months; provided, however, if the commencement of the
Accumulation Period is delayed in accordance with Section 4.02 of the Indenture Supplement, the
Accumulation Period Length shall be determined in accordance with the definition of “Accumulation
Period Length” in the Indenture Supplement.

     “Accumulation Reserve Funding Period” shall not apply if the Calculation Agent on behalf of
the Issuer notifies the Indenture Trustee that it expects the Accumulation Period Length to be
adjusted to one (1) month, and otherwise shall mean a period commencing on the first Distribution
Date on which a condition in the right column of the following table was in effect on the
immediately preceding Distribution Date, if the Distribution Date is a Distribution Date described
in the corresponding left column of the following table, and ending on the Distribution Date
immediately preceding the earlier to occur of:

     (x) the Expected Maturity Date for the Class B(2007-2) Notes and

     (y) the Principal Payment Date on which the Outstanding Dollar Principal Amount of the Class
B(2007-2) Notes is paid in full.

	 	 	 
	Distribution Date:

	 	Condition:
	 

	 	 
	(a) The Distribution Date occurring
three (3) calendar months prior to
the first scheduled Distribution
Date of the Accumulation Period (as
adjusted in accordance with Section
4.02 of the Indenture Supplement)
and any following Distribution Date

	 	No condition.
	 
	 	 
	(b) The Distribution Date occurring
four (4) calendar months prior to
the first scheduled Distribution
Date of the Accumulation Period (as
adjusted in accordance with Section
4.02

	 	The three-month rolling average Excess Spread Percentage is less than 4%.

2

 

	 	 	 
	Distribution Date:

	 	Condition:
	 

	 	 
	of the Indenture Supplement)
and any following Distribution Date
	 	 
	 
	 	 
	(c) The Distribution Date occurring
six (6) calendar months prior to the
first scheduled Distribution Date of
the Accumulation Period (as adjusted
in accordance with Section 4.02 of
the Indenture Supplement) and any
following Distribution Date

	 	The three-month rolling average
Excess Spread Percentage is less
than 3%.
	 
	 	 
	(D) The Distribution Date occurring
twelve (12) calendar months prior to
the first scheduled Distribution
Date of the Accumulation Period (as
adjusted in accordance with Section
4.02 of the Indenture Supplement)
and any following Distribution Date

	 	The three-month rolling average
Excess Spread Percentage is less
than 2%.

     “Class B(2007-2) Adverse Event” means the occurrence of any of the following: (a) an Early
Redemption Event with respect to the Class B(2007-2) Notes or (b) an Event of Default and
acceleration of the Class B(2007-2) Notes; provided, however, that if the only such event to have
occurred is an Excess Spread Early Redemption Event for which an Excess Spread Early Redemption
Cure has occurred, a Class B(2007-2) Adverse Event shall not be treated as continuing from and
after the date of such cure.

     “Class B(2007-2) Note” means any Note, in the form set forth in Exhibit A hereto, designated
therein as a Class B(2007-2) Note and duly executed and authenticated in accordance with the
Indenture.

     “Class B(2007-2) Noteholder” means a Person in whose name a Class B(2007-2) Note is registered
in the Note Register.

     “Class B(2007-2) Termination Date” means the earliest to occur of (a) the Principal Payment
Date on which the Outstanding Dollar Principal Amount of the Class B(2007-2) Notes is paid in full,
(b) the Legal Maturity Date and (c) the date on which the Indenture is discharged and satisfied
pursuant to Article VI thereof.

     “Encumbered Amount” means, for the Class B(2007-2) Notes, an amount equal to

     (a) the Nominal Liquidation Amount of the Class B(2007-2) Notes, divided by

     (b) the Nominal Liquidation Amount of all Tranches of Class B Notes in the DiscoverSeries,
multiplied by

     (c) the aggregate Required Subordinated Amount of Class B Notes for all Tranches of Class A
Notes in the DiscoverSeries with a Required Subordinated Amount of Class B Notes greater than zero.

3

 

     “Encumbered Required Subordinated Amount of Class C Notes” means, for the Class B(2007-2)
Notes, an amount equal to the product of

     (a) the Encumbered Amount for the Class B(2007-2) Notes, and

     (b) the Required Subordinated Percentage of Class C Notes (Encumbered) for the Class B(2007-2)
Notes.

     “Excess Spread Percentage” for any Distribution Date means a fraction, the numerator of which
is the Excess Spread Amount for such Distribution Date multiplied by 12 and the denominator of
which is the sum of the Nominal Liquidation Amounts of all Tranches of DiscoverSeries Notes as of
the first day of the related Due Period.

     “Expected Maturity Date” means August 16, 2010.

     “Indenture” means the Indenture dated as of July 26, 2007 between the Issuer and Indenture
Trustee, as the same may be amended, supplemented, restated, amended and restated, replaced or
otherwise modified from time to time.

     “Indenture Supplement” means the Indenture Supplement dated as of July 26, 2007 for the
DiscoverSeries Notes, by and between the Issuer and the Indenture Trustee, as the same may be amended, supplemented, restated, amended and restated, replaced or otherwise modified from
time to time.

     “Initial Dollar Principal Amount” means $115,000,000, or such higher amount as is specified in
any Notice of Additional Issuance under Section 2.09.

     “Interest Accrual Period” means, with respect to any Interest Payment Date, the period from
and including the previous Interest Payment Date (or, in the case of the first Interest Payment
Date for any Class B(2007-2) Note, from and including the applicable Issuance Date) to but
excluding such Interest Payment Date.

     “Interest Payment Date” means the fifteenth day of each month commencing in September 2007, or
if such fifteenth day is not a Business Day, the next succeeding Business Day.

     “Issuance Date” means August 31, 2007 with respect to all Class B(2007-2) Notes issued on the
date hereof and, with respect to any additional Class B(2007-2) Notes issued pursuant to Section
2.09, any Issuance Date specified in the Notice of Additional Issuance delivered thereunder.

     “Legal Maturity Date” means February 15, 2013.

     “LIBOR” means, with respect to any LIBOR Determination Date, the rate for deposits in United
States dollars with a duration comparable to the relevant Interest Accrual Period which appears on
Reuters Screen LIBOR01 as of 11:00 a.m., London time, on such day. If such rate does not appear on
Reuters Screen LIBOR01, the rate will be determined by the Indenture Trustee on the basis of the
rates at which deposits in United States dollars are offered by major

4

 

banks in the London interbank market, selected by the Indenture Trustee, at approximately 11:00 a.m., London time, on such day to
prime banks in the London interbank market with a duration comparable to the relevant Interest
Accrual Period commencing on that day. The Indenture Trustee will request the principal London
office of at least four banks to provide a quotation of its rate. If at least two such quotations
are provided, the rate will be the arithmetic mean of the quotations. If fewer than two quotations
are provided as requested, the rate for that day will be the arithmetic mean of the rates quoted by
four major banks in New York City, selected by the Trustee, at approximately 11:00 a.m., New York
City time, on that day for loans in United States dollars to leading European banks with a duration
comparable to the relevant Interest Accrual Period commencing on that day. If LIBOR with respect to
a LIBOR Determination Date is not determined pursuant to the foregoing, LIBOR with respect to such
LIBOR Determination Date will be LIBOR with respect to the immediately prior LIBOR Determination
Date.

	 	 	“LIBOR Determination Date” means the second LIBOR Business Day immediately preceding the
commencement of an Interest Accrual Period.
	 
	 	 	“LIBOR Business Day,” if applicable, shall mean a day other than a Saturday or a Sunday on
which banking institutions in both the City of London, England and in New York, New York are not
required or authorized by law to be closed.
	 
	 	 	“Note Interest Rate” means LIBOR + 0.85% per annum, calculated on the basis of the actual
number of days elapsed and a 360-day year.
	 
	 	 	“Notice of Additional Issuance” has the meaning set forth in Section 2.09.
	 
	 	 	“Required Daily Deposit Target Finance Charge Amount” means, for any day in a Due Period, an
amount equal to the Class B Tranche Interest Allocation for the related Distribution Date;
provided, however, that for purposes of determining the Required Daily Deposit Target Finance
Charge Amount on any day on which the Class B Tranche Interest Allocation cannot be determined
because the LIBOR Determination Date for the applicable Interest Accrual Period has not yet
occurred, the Required Daily Deposit Target Finance Charge Amount shall be the Class B Tranche
Interest Allocation determined based on a pro forma calculation made on the assumption that LIBOR
will be LIBOR for the applicable period determined on the first day of such calendar month,
multiplied by 1.25.
	 
	 	 	“Required Daily Deposit Target Principal Amount” means, for any day in a Due Period, (i) if
such Due Period is in the Accumulation Period for the Class B(2007-2) Notes, the Accumulation
Amount, (ii) if such day is on or after the occurrence and during the continuance of a Class
B(2007-2) Adverse Event, the Nominal Liquidation Amount of the Class B(2007-2) Notes, and (iii) in
all other circumstances, zero.
	 
	 	 	“Required Subordinated Amount of Class C Notes” means, for the Class B(2007-2) Notes for any
date of determination, an amount equal to the sum of

     (a) the Unencumbered Required Subordinated Amount of Class C Notes for such Class
B(2007-2) Notes and

5

 

     (b) the Encumbered Required Subordinated Amount of Class C Notes for such Class
B(2007-2) Notes;

provided, however, that for any date of determination on or after the occurrence and during the
continuation of a Class B(2007-2) Adverse Event, the Required Subordinated Amount of Class C Notes
for the Class B(2007-2) Notes will be the greater of

     (x) the amount determined above for such date of determination and

     (y) the amount determined above for the date immediately prior to the date on which
such Class B(2007-2) Adverse Event shall have occurred.

     “Required Subordinated Amount of Class D Notes” means, for the Class B(2007-2) Notes for any
date of determination, zero, subject to adjustment in accordance with Section 2.02.

     “Required Subordinated Percentage of Class C Notes (Encumbered)” means, for the Class
B(2007-2) Notes, 127.272727%, subject to adjustment in accordance with Section 2.02.

     “Required Subordinated Percentage of Class C Notes (Unencumbered)” means, for the Class
B(2007-2) Notes, 7.526882%, subject to adjustment in accordance with Section 2.02.

     “Reuters Screen LIBOR01” means the display page currently so designated on the Reuters Screen
(or such other page as may replace that page on that service for the purpose of displaying
comparable rates or prices).

     “Specified Rating” means, for the Class B(2007-2) Notes, A with respect to Standard & Poors,
A2 with respect to Moody’s and A with respect to Fitch.

     “Stated Principal Amount” means $115,000,000 or such higher amount as is specified in any
Notice of Additional Issuance under Section 2.09.

     “Targeted Accumulation Reserve Subaccount Deposit” means, with respect to any Distribution
Date during the Accumulation Reserve Funding Period, an amount equal to (i) 0.5% of the Outstanding
Dollar Principal Amount of the Class B(2007-2) Notes as of the close of business on the last day of
the related Due Period or (ii) any other amount designated by the Calculation Agent on behalf of
the Issuer; provided, however, that if such designation is of a lesser amount, the applicable Note
Rating Agencies shall have provided prior written confirmation that a Ratings Effect will not occur
with respect to such change.

     “Unencumbered Amount” means, for the Class B(2007-2) Notes, an amount equal to the Nominal
Liquidation Amount of the Class B(2007-2) Notes minus the Encumbered Amount for the Class B(2007-2)
Notes.

     “Unencumbered Required Subordinated Amount of Class C Notes” means, for the Class B(2007-2)
Notes, an amount equal to the product of

     (a) the Unencumbered Amount for the Class B(2007-2) Notes and

6

 

     (b) the Required Subordinated Percentage of Class C Notes (Unencumbered) for the Class
B(2007-2) Notes.

     Section 1.02. Representations and Warranties of Issuer. The Issuer represents and warrants
that:

     (a) the Issuer has been duly formed and is validly existing as a statutory trust in good
standing under the laws of the State of Delaware, and has full power and authority to execute and
deliver this Terms Document and to perform the terms and provisions hereof;

     (b) the execution, delivery and performance of this Terms Document by the Issuer have been
duly authorized by all necessary corporate and statutory trust proceedings of any Beneficiary and
the Owner Trustee, do not require any approval or consent of any governmental agency or authority,
and do not and will not conflict with any material provision of the Certificate of Trust or the
Trust Agreement of the Issuer;

     (c) this Terms Document is the valid, binding and enforceable obligations of the Issuer,
except as the same may be limited by receivership, insolvency, reorganization, moratorium or other
laws relating to the enforcement of creditors’ rights generally or by general equity principles;

     (d) to the best of the Issuer’s knowledge, this Terms Document will not conflict with any law
or governmental regulation or court decree applicable to it;

     (e) the Issuer is not required to be registered under the Investment Company Act;

     (f) all information heretofore furnished by the Issuer in writing to the Indenture Trustee for
purposes of or in connection with this Terms Document or any transaction contemplated hereby is,
and all such information hereafter furnished by the Issuer in writing to the Indenture Trustee will
be, true and accurate in every material respect or based on reasonable estimates on the date as of
which such information is stated or certified; and

     (g) to the best knowledge of the Issuer, there are no proceedings or investigations pending
against the Issuer before any court, regulatory body, administrative agency, or other tribunal or
governmental instrumentality having jurisdiction over the Issuer (A) asserting the invalidity of
this Terms Document, (B) seeking to prevent the consummation of any of the transactions
contemplated by this Terms Document or (C) seeking any determination or ruling which in the
Issuer’s judgment would materially and adversely affect the performance by the Issuer of its
obligations under this Terms Document or the validity or enforceability of this Terms Document.

     Section 1.03. Representations and Warranties of Indenture Trustee. The Indenture Trustee
represents and warrants and any successor trustee shall represent and warrant that:

     (a) The Indenture Trustee is organized, existing and in good standing under the laws of the
United States of America;

7

 

     (b) The Indenture Trustee has full power, authority and right to execute, deliver and perform
this Indenture, and has taken all necessary action to authorize the execution, delivery and
performance by it of this Terms Document; and

     (c) This Terms Document has been duly executed and delivered by the Indenture Trustee.

     Section 1.04. Limitations on Liability.

     (a) It is expressly understood and agreed by the parties hereto that (i) this Terms Document
is executed and delivered by the Owner Trustee not individually or personally but solely as Owner
Trustee under the Trust Agreement, in the exercise of the powers and authority conferred and vested
in it, (ii) each of the representations, undertakings and agreements herein made on the part of the
Issuer is made and intended not as a personal representation, undertaking or agreement by the Owner
Trustee but is made and intended for the purpose of binding only the Issuer, (iii) nothing herein
contained will be construed as creating any liability on the Owner Trustee individually or
personally, to perform any covenant of the Issuer either expressed or implied herein, all such
liability, if any, being expressly waived by the parties to this Terms Document and by any Person
claiming by, through or under them and (iv) under no circumstances will the Owner Trustee be
personally liable for the payment of any indebtedness or expenses of the Issuer or be liable for
the breach or failure of any obligation, representation, warranty or covenant made or undertaken by
the Issuer under this Terms Document or any related documents.

     (b) None of the Indenture Trustee, the Owner Trustee, the Calculation Agent, any Beneficiary,
the Depositor, any Master Servicer or any Servicer or any of their respective officers, directors,
employees, incorporators or agents will have any liability with respect to this Terms Document, and
recourse may be had solely to the Collateral pledged to secure these Class B(2007-2) Notes under
the Indenture, the Indenture Supplement and this Terms Document.

     Section 1.05. Governing Law. THIS TERMS DOCUMENT WILL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATION
LAW, WITHOUT REFERENCE TO ANY CONFLICT OF LAW PROVISIONS THAT WOULD RESULT IN THE APPLICATION OF
THE LAWS OF ANY OTHER STATE.

     Section 1.06. Counterparts. This Terms Document may be executed in any number of counterparts, each of which when so
executed will be deemed to be an original, but all such counterparts will together constitute but
one and the same instrument.

     Section 1.07. Ratification of Indenture and Indenture Supplement. As supplemented by this
Terms Document, each of the Indenture and the Indenture Supplement is in all respects ratified and
confirmed and the Indenture as supplemented by the Indenture Supplement and this Terms Document
shall be read, taken and construed as one and the same instrument.

ARTICLE II

The Class B(2007-2) Notes

8

 

     Section 2.01. Creation and Designation. There is hereby created a Tranche of Class B Notes to
be issued pursuant to the Indenture and the Indenture Supplement to be known as the “DiscoverSeries
Class B(2007-2) Notes.”

     Section 2.02. Adjustments to Required Subordinated Percentages and Amount.

     (a) On any date, the Issuer may change the Required Subordinated Percentage of Class C Notes
(Encumbered) or the Required Subordinated Percentage of Class C Notes (Unencumbered), in each case
for the Class B(2007-2) Notes, without the consent of any Noteholders; provided that the Issuer has
received written confirmation from each applicable Note Rating Agency that the change in such
percentage will not result in a Ratings Effect for any Tranche of Outstanding DiscoverSeries Notes.
On any date, the Issuer may change the Required Subordinated Amount of Class D Notes for the Class
B(2007-2) Notes (though not below zero) and may add such definitions and other terms and make such
additional amendments to this Terms Document as shall be necessary to determine such Required
Subordinated Amount of Class D Notes without the consent of any Noteholders; provided that the
Issuer has received written confirmation from each applicable Note Rating Agency that the change in
such percentage and such other amendments will not result in a Ratings Effect for any Tranche of
Outstanding DiscoverSeries Notes; provided, however, that at any time the Class D Notes are or will
be held by Discover Bank or any of its affiliates, the Required Subordinated Amount of Class D
Notes for these Class B(2007-2) Notes may not be increased above zero.

     (b) On any date, the Issuer may, at the direction of the Beneficiary, replace all or a
portion of the Required Subordinated Amount of Class C Notes or the Required Subordinated Amount of
Class D Notes, in each case for the Class B(2007-2) Notes with a different form of credit enhancement (including, without limitation, a cash collateral account, a letter of
credit, a reserve account, a surety bond, an insurance policy or a collateral interest, or any
combination thereof) and may add such definitions and other terms and make such additional
amendments to this Terms Document as shall be necessary for such replacement without the consent of
any Noteholders, provided that the Issuer has received written confirmation from each applicable
Note Rating Agency that such replacement and such other amendments will not result in a Ratings
Effect for any Tranche of Outstanding DiscoverSeries Notes.

     Section 2.03. Interest Payment. For each Interest Payment Date, the amount of interest due
with respect to the Class B(2007-2) Notes shall be an amount equal to

	 	(i)	 	(A) a fraction, the numerator of which is the actual number of
days in the related Interest Accrual Period and the denominator of which is
360, times
	 
	 		 	(B) the Note Interest Rate in effect with respect to such related
Interest Accrual Period, times
	 
	 	(ii)	 	the Outstanding Dollar Principal Amount of the Class B(2007-2)
Notes determined as of the first date of such related Interest Accrual Period,
plus

9

 

any Class B Tranche Interest Allocation Shortfall for such Class B(2007-2) Notes for the
immediately preceding Distribution Date, together with interest thereon at the Note Interest Rate
in effect with respect to such related Interest Accrual Period, calculated on the basis of the
actual number of days in the related Interest Accrual Period and a 360-day year.

     Section 2.04. Notification of LIBOR. On each LIBOR Determination Date, the Indenture Trustee
shall send to the Issuer, the Beneficiary, each applicable Master Servicer and any stock exchange
on which the Class B(2007-2) Notes are then listed (if the rules of such exchange so require), by
facsimile transmission or electronic transmission, notification of LIBOR for the following Interest
Accrual Period.

     Section 2.05. Payments of Interest and Principal.

     (a) The Issuer will cause interest to be paid on each Interest Payment Date and principal to
be paid on the Expected Maturity Date; provided, however, that it shall not be an Event of Default
if principal is not paid in full on such Expected Maturity Date unless funds for such payment have been allocated in accordance with Section 3.01 of the Indenture Supplement; and
provided, further, that if a Class B(2007-2) Adverse Event has occurred and is continuing,
principal will instead be payable in monthly installments on each Principal Payment Date for the
Class B(2007-2) Notes in accordance with Sections 3.01 and 3.05 of the Indenture Supplement. All
payments of interest and principal on the Class B(2007-2) Notes shall be made as set forth in
Section 1101 of the Indenture.

     (b) The right of the Class B(2007-2) Noteholders to receive payments from the Issuer will
terminate on the Class B(2007-2) Termination Date.

     (c) All payments of principal, interest or other amounts to the Class B(2007-2) Noteholders
will be made pro rata based on the Stated Principal Amount of their Class B(2007-2) Notes.

     Section 2.06. Form of Delivery of Class B(2007-2) Notes; Depository; Denominations.

     (a) The Class B(2007-2) Notes shall be delivered in the form of a Registered Note as provided
in Section 204 of the Indenture. The form of the Class B(2007-2) Notes is attached hereto as
Exhibit A.

     (b) The Class B(2007-2) Notes shall, until such time as the laws of any jurisdiction in which
they are offered or sold no longer restrict the transfer or sale thereof, bear a legend in
substantially the following form:

THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER SECTION 5 OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND THIS NOTE MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF THIS NOTE MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5

10

 

OF THE SECURITIES ACT PROVIDED BY RULE 144A. THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE
DISCOVER CARD EXECUTION NOTE TRUST THAT (A) THIS NOTE MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED ONLY (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
“QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT OR, IN THE CASE OF THE INITIAL
HOLDER HEREOF ONLY, ANOTHER APPLICABLE EXEMPTION UNDER THE SECURITIES ACT, (2) TO
DISCOVER CARD EXECUTION NOTE TRUST OR ITS AFFILIATES OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, IF APPLICABLE, IN
EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAW OF ANY STATE OF THE
UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY SUBSEQUENT PURCHASER FROM IT OF THE
RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.

No Class B(2007-2) Notes shall be transferred except in accordance with the transfer restrictions
described in the legend set forth above.

     (c) The Class B(2007-2) Notes will be issued in minimum denominations of $100,000 and integral
multiples of $1,000 in excess of that amount.

     Section 2.07. Delivery and Payment for the Class B(2007-2) Notes. The Issuer shall execute
and deliver the Class B(2007-2) Notes to the Indenture Trustee for authentication, and the
Indenture Trustee shall deliver the Class B(2007-2) Notes when authenticated, each in accordance
with Sections 203 and 303 of the Indenture.

     Section 2.08. Targeted Deposits to the Accumulation Reserve Account. The deposit targeted to
be made to the Accumulation Reserve Subaccount for the Class B(2007-2) Notes for any Due Period
during the Accumulation Reserve Funding Period will be an amount equal to the Targeted Accumulation
Reserve Subaccount Deposit minus any amount on deposit in the Accumulation Reserve Subaccount for
the Class B(2007-2) Notes.

     Section 2.09. Additional Issuances of Notes. Subject to clauses (ii), (iii), (iv) and (v) of
Sections 2.02 and Section 2.03 of the Indenture Supplement, the Issuer may issue additional Class
B(2007-2) Notes, so long as the following conditions precedent are satisfied:

     (a) the Issuer shall have given the Indenture Trustee written notice of such issuance of
additional Class B(2007-2) Notes (the “Notice of Additional Issuance”) at least one (1) Business
Day in advance of the Issuance Date thereof, which notice shall include:

	 	(i)	 	the Issuance Date of such additional Class B(2007-2) Notes;
	 
	 	(ii)	 	the amount of such additional Class B(2007-2) Notes being
offered and the resulting Initial Dollar Principal Amount and Stated Principal
Amount of Class B(2007-2) Notes;

11

 

	 	(iii)	 	the date from which interest on such additional Class
B(2007-2) Notes will accrue (which may be a date prior to the date of issuance
thereof);
	 
	 	(iv)	 	the first Interest Payment Date on which interest will be paid
on such additional Class B(2007-2) Notes; and
	 
	 	(v)	 	any other terms that the Issuer set forth in such notice of
issuance of additional Class B(2007-2) Notes to clarify the rights of Holders
of such additional Class B(2007-2) Notes or the effect of such issuance of
additional Class B(2007-2) Notes on any calculations to be made with respect to
the Class B(2007-2) Notes, Class B, or the Issuer.

All such terms shall be incorporated into and form a part of this Terms Document on and after the
effective date of such Class B(2007-2) Notes; and

     (b) no Class B(2007-2) Adverse Event has occurred and is continuing.

     The Issuer shall not have to satisfy the conditions set forth in Section 310 of the Indenture
in connection with an issuance of additional Class B(2007-2) Notes so long as such conditions were
satisfied or waived in connection with the initial issuance of Class B(2007-2) Notes.

[Remainder of page intentionally blank; signature page follows]

12

 

IN WITNESS WHEREOF, the parties hereto have caused this Terms Document to be duly executed, all as
of the day and year first above written.

	 	 	 	 	 
	 	DISCOVER CARD EXECUTION NOTE TRUST,

as Issuer

 	 
	 	By:  	Wilmington Trust Company,
 	 
	 	 	not in its individual capacity but 	 
	 	 	solely as Owner Trustee 	 
	 
	 	By:  	                                                     /s/  Jennifer Luce
 	 
	 	 	Name:  	Jennifer A. Luce 	 
	 	 	Title:  	Sr. Financial Services Officer 	 
	 
	 	U.S. BANK NATIONAL ASSOCIATION,

as Indenture Trustee

 	 
	 	By:  	/s/  Patricia M. Child
 	 
	 	 	Name:  	Patricia M. Child 	 
	 	 	Title:  	Vice President 	 
	 

[Signature Page to Class B(2007-2) Terms Document]

 

Exhibit A

DISCOVERSERIES CLASS B(2007-2) NOTE

     THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER SECTION 5 OF THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND THIS NOTE MAY
NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF THIS NOTE
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY
RULE 144A. THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE DISCOVER CARD EXECUTION NOTE
TRUST THAT (A) THIS NOTE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) TO A PERSON WHO
THE SELLER REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT OR, IN THE CASE OF THE
INITIAL HOLDER HEREOF ONLY, ANOTHER APPLICABLE EXEMPTION UNDER THE SECURITIES ACT, (2) TO DISCOVER
CARD EXECUTION NOTE TRUST OR ITS AFFILIATES, OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT, IF APPLICABLE, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAW OF ANY
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY SUBSEQUENT PURCHASER FROM IT OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE.

     THE HOLDER OF THIS NOTE, BY ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT AT ANY TIME
INSTITUTE AGAINST THE ISSUER, ANY MASTER TRUST OR ANY SPECIAL PURPOSE ENTITY THAT ACTS AS A
DEPOSITOR WITH RESPECT TO ANY MASTER TRUST OR THE ISSUER, OR JOIN IN ANY INSTITUTION AGAINST THE
ISSUER, ANY MASTER TRUST OR ANY SPECIAL PURPOSE ENTITY THAT ACTS AS A DEPOSITOR WITH RESPECT TO ANY
MASTER TRUST OR THE ISSUER, ANY RECEIVERSHIP, INSOLVENCY, BANKRUPTCY OR SIMILAR PROCEEDINGS, OR
OTHER PROCEEDINGS UNDER ANY UNITED STATES FEDERAL OR STATE BANKRUPTCY OR SIMILAR LAW IN CONNECTION
WITH ANY OBLIGATIONS RELATING TO THE NOTES, THE INDENTURE, ANY DERIVATIVE AGREEMENT, ANY
SUPPLEMENTAL CREDIT ENHANCEMENT AGREEMENT AND ANY SUPPLEMENTAL LIQUIDITY AGREEMENT.

     THE HOLDER OF THIS NOTE, BY ACCEPTANCE OF THIS NOTE, AND EACH HOLDER OF A BENEFICIAL INTEREST
IN THIS NOTE, BY THE ACQUISITION OF A BENEFICIAL INTEREST THEREIN, AGREE TO TREAT THE NOTES AS
INDEBTEDNESS FOR APPLICABLE FEDERAL, STATE, AND LOCAL INCOME AND FRANCHISE TAX LAW AND FOR PURPOSES
OF ANY OTHER TAX IMPOSED ON OR MEASURED BY INCOME.

 

 

     DISTRIBUTIONS OF PRINCIPAL AND INTEREST TO THE HOLDER OF THIS CLASS B NOTE ARE SUBORDINATE TO
THE PAYMENT ON EACH DISTRIBUTION DATE OF PRINCIPAL OF AND INTEREST ON THE CLASS A NOTES OF THE
DISCOVERSERIES AND THE PAYMENT OF CERTAIN OTHER AMOUNTS, TO THE EXTENT AND AS DESCRIBED IN THE
INDENTURE AND INDENTURE SUPPLEMENT REFERRED TO HEREIN.

2

 

			
	REGISTERED
	 	up to $115,000,000 *

DISCOVER CARD EXECUTION NOTE TRUST

Floating Rate

DISCOVERSERIES CLASS B(2007-2) NOTE

     DISCOVER CARD EXECUTION NOTE TRUST, a statutory trust created under the laws of the State of
Delaware (herein referred to as the “Issuer” or the “Note Issuance Trust”), for
value received, hereby promises to pay to [                    ] , or registered assigns,
subject to the following provisions, a principal sum of $115,000,000 (one hundred and fifteen
million dollars) payable on the August 16, 2010 Payment Date (the “Expected Maturity
Date”), except as otherwise provided below or in the Indenture or the Indenture Supplement (as
defined on the reverse hereof); provided, however, that the entire unpaid principal
amount of this Note shall be due and payable on the February 15, 2013 Payment Date (the “Legal
Maturity Date”). Interest will accrue on this Note at the rate of one-month LIBOR + 0.85% per
annum, as more specifically set forth in the Class B(2007-2) Terms Document dated August 31, 2007
(the “Terms Document”), between the Issuer and U.S. Bank National Association, as Indenture
Trustee (the “Indenture Trustee”, which term includes any successor Indenture Trustee under
the Indenture), and shall be due and payable on each Interest Payment Date from and including the
previous Interest Payment Date (or, in the case of the first Interest Payment Date for any Class
B(2007-2) Notes, from and including the applicable Issuance Date) to but excluding such Interest
Payment Date. Interest will be computed on the basis of the actual number of days elapsed and a
360-day year. Such principal of and interest on this Note shall be paid in the manner specified on
the reverse hereof.

     The principal and interest may be payable monthly, and may be payable earlier or later than
the Expected Maturity Date, following an Event of Default or while an Early Redemption Event has
occurred and is continuing. No principal or interest will be distributed on the Note following the
distribution of proceeds of a Receivables Sale.

     Series Principal Amounts allocated to these Class B(2007-2) Notes will be applied first to pay
shortfalls in interest on Class A Notes, then to pay any shortfalls in Series Servicing Fees
allocable to the DiscoverSeries, and then to make Targeted Principal Deposits to the Principal
Funding Subaccounts for Class A Notes, including Targeted Prefunding Deposits, before being applied
to make Targeted Principal Deposits to the Principal Funding Subaccounts of Subordinate Notes,
including these Class B(2007-2) Notes. Principal will not be paid on these Class B(2007-2) Notes
prior to their Legal Maturity Date unless the Class A Usage of Class B Notes is zero for all
Tranches of Class A Notes of the DiscoverSeries and the required level of subordination for the
Class A Notes of the DiscoverSeries is available after giving effect to such payment.

     The principal of and interest on this Note are payable in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of public and private
debts.

3

 

     The Initial Dollar Principal Amount of this Note is $115,000,000.

     Reference is made to the further provisions of this Note set forth on the reverse hereof,
which shall have the same effect as though fully set forth on the face of this Note.

     Unless the certificate of authentication hereon has been executed by the Indenture Trustee
whose name appears below by manual signature, this Note shall not be entitled to any benefit under
the Indenture, Indenture Supplement or the Terms Document referred to on the reverse hereof, or be
valid or obligatory for any purpose.

 

	*	 	Denominations of $100,000 and in integral multiples of $1,000 in excess thereof.

4

 

IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed, manually or in facsimile,
by its Authorized Officer.

	 	 	 	 	 
	 	DISCOVER CARD EXECUTION NOTE TRUST,

as Issuer

 	 
	 	By:  	WILMINGTON TRUST COMPANY,
not in its individual capacity, but solely as Owner Trustee	 
	 
	 	 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	 	Date: August 31, 2007 	  

5

 

	 	 	 	 	 

INDENTURE TRUSTEE’S CERTIFICATE OF AUTHENTICATION

     This is one of the Notes designated above and referred to in the within-mentioned Indenture.

	 	 	 	 	 
	 	US BANK NATIONAL ASSOCIATION,
not in
its individual capacity but solely
as Indenture Trustee

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	 	Date: August 31, 2007 	 

6

 

	 	 	 	 	 

REVERSE OF NOTE

     This Note is one of the Notes of a duly authorized issue of Notes of the Issuer, designated as
its Class B(2007-2) DiscoverSeries Notes (herein called the “Class B(2007-2) Notes”), all
issued under an Indenture dated as of July 26, 2007 (such Indenture, as amended, restated, amended
and restated, supplemented, replaced or otherwise modified from time to time, is herein called the
“Indenture”), as supplemented by an Indenture Supplement dated as of July 26, 2007 (such
Indenture Supplement, as amended, restated, amended and restated, supplemented, replaced or
otherwise modified from time to time, is herein called the “Indenture Supplement”), between
the Issuer and Indenture Trustee, to which Indenture and Indenture Supplement is hereby made for a
statement of the respective rights and obligations thereunder of the Issuer, the Indenture Trustee
and the Holders of the Notes. The Class B(2007-2) Notes are subject to all terms of the Indenture,
the Indenture Supplement and the Terms Document. All terms used in this Class B(2007-2) Note that
are defined in the Indenture, the Indenture Supplement and the Terms Document shall have the
meanings assigned to them in or pursuant to the Indenture, the Indenture Supplement and the Terms
Document.

     The Class A Notes and the Class C Notes of the DiscoverSeries and other tranches of Class B
Notes of the DiscoverSeries will also be issued under the Indenture and the Indenture Supplement.

     The Class B(2007-2) Notes are and will be equally and ratably secured by the collateral
pledged as security therefor as provided in the Indenture and the Indenture Supplement.

     The Class B(2007-2) Notes are subordinated in right of payment of principal and interest to
the Class A Notes and provide loss protection to the Class A Notes of the DiscoverSeries, to the
extent set forth in the Indenture Supplement. Principal Amounts allocable to the Class B(2007-2)
Notes may be applied to pay the Class A Interest Allocation or the Series Servicing Fees of the
DiscoverSeries, to the extent set forth in the Indenture Supplement.

     Principal of the Class B(2007-2) Notes will be payable on the Expected Maturity Date in an
amount described on the face hereof.

     As described above, the entire unpaid principal amount of this Class B(2007-2) Note shall be
due and payable on the Legal Maturity Date. Notwithstanding the foregoing, the entire unpaid
principal amount of the Class B(2007-2) Notes shall be due and payable on the date on which an
Event of Default relating to the Class B(2007-2) Notes shall have occurred and be continuing and,
except in the event of an insolvency related default, the Indenture Trustee or the Majority Holders
of the applicable Series, Class or Tranche of Outstanding Dollar Principal Amount of the
Outstanding Notes have declared the Class B(2007-2) Notes to be immediately due and payable in the
manner provided in Section 702 of the Indenture; provided, however, that
such acceleration of the entire unpaid principal amount of the Notes may be rescinded by the
Majority Holders of such applicable Series, Class or Tranche of Notes.

     On any day occurring on or after the date on which the aggregate Nominal Liquidation Amount of
any Tranche of Notes is reduced to less than 5% of its highest Outstanding Dollar Principal Amount,
the Depositor or any Affiliate thereof has the right, but not the obligation, to redeem such
Tranche of Notes in whole but not in part, pursuant to Section 1202 of the Indenture. The
redemption price will be an amount equal to the Outstanding Dollar Principal

7

 

Amount of such Tranche, plus accrued, unpaid and additional interest or principal accreted and
unpaid on such Tranche to but excluding the date of redemption.

     Subject to the terms and conditions of the Indenture, the Beneficiary, on behalf of the Note
Issuance Trust, may from time to time issue, or direct the Owner Trustee, on behalf of the Note
Issuance Trust, to issue, one or more Series, Classes or Tranches of Notes.

     On each Payment Date, the Paying Agent shall distribute to each Holder of Class B(2007-2)
Notes of record on the related Record Date (except for the final distribution with respect to this
Class B(2007-2) Notes) such Holder of Class B(2007-2) Notes’ pro rata share of the amounts held by
the Paying Agent that are allocated and available on such Payment Date to pay interest and
principal on the Class B Notes.

     Payments of interest on this Class B(2007-2) Note due and payable on each Payment Date,
together with any installment of principal, if any, to the extent not in full payment of this Class
B(2007-2) Note, shall be made by check mailed to the Person whose name appears as the Registered
Holder of this Class B(2007-2) Note on the Note Register as of the close of business on each Record
Date, except that with respect to Class B(2007-2) Notes registered on the Record Date in the name
of the nominee of a clearing agency, payments will be made by wire transfer in immediately
available funds to the account designated by such nominee. Such checks shall be mailed to the
Person entitled thereto at the address of such Person as it appears on the Note Register as of the
applicable Record Date without requiring that this Class B(2007-2) Note be submitted for notation
of payment. Any reduction in the principal amount of this Class B(2007-2) Note (or any one or more
Predecessor Notes) effected by any payments made on any Payment Date shall be binding upon all
future Holders of this Class B(2007-2) Note and of any Class B(2007-2) Note issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not noted
hereon. If funds are expected to be available, as provided in the Indenture, for payment in full
of the then remaining unpaid principal amount of this Class B(2007-2) Note on a Payment Date, then
the Indenture Trustee, in the name of and on behalf of the Issuer, will notify the Person who was
the Registered Holder hereof as of the Record Date preceding such Payment Date by notice mailed
within five days of such Payment Date and the amount then due and payable shall be payable only
upon presentation and surrender of this Class B(2007-2) Note at the Indenture Trustee’s principal
Corporate Trust Office or at the office of the Indenture Trustee’s agent appointed for such
purposes located in the City of New York. On any payment of interest or principal being made,
details of such payment shall be entered by the Indenture Trustee on behalf of the Issuer in
Schedule A hereto.

     As provided in the Indenture and subject to certain limitations set forth therein and as set
forth in the first legend on the face hereof, the transfer of this Class B(2007-2) Note may be
registered on the Note Register upon surrender of this Class B(2007-2) Note for registration of
transfer at the office or agency designated by the Issuer pursuant to the Indenture, duly endorsed
by, or accompanied by a written instrument of transfer in form satisfactory to the Indenture
Trustee duly executed by, the Holder hereof or his attorney duly authorized in writing, with such
signature guaranteed by a commercial bank or trust company located, or having a correspondent
located, in the City of New York or the city in which the Corporate Trust Office is located, or a
member firm of a national securities exchange, and such other documents as the Indenture Trustee
may require, and thereupon one or more new Class B(2007-2) Notes of authorized denominations and in
the same aggregate principal amount will be issued to the designated

8

 

transferee or transferees. No service charge will be charged for any registration of transfer
or exchange of this Class B(2007-2) Note, but the transferor may be required to pay a sum
sufficient to cover any tax or other governmental charge that may be imposed in connection with any
such registration of transfer or exchange.

     To the fullest extent permitted by applicable law, each Noteholder or Note Owner, by
acceptance of a Class B(2007-2) Note or, in the case of a Note Owner, a beneficial interest in a
Class B(2007-2) Note, covenants and agrees that by accepting the benefits of the Indenture that it
will not at any time institute against the Issuer, any Master Trust or any special purpose entity
that acts as a depositor with respect to any Master Trust or the Issuer, or join in any institution
against the Issuer, any Master Trust or any special purpose entity that acts as a depositor with
respect to any Master Trust or the Issuer of, any receivership, insolvency, bankruptcy or other
similar proceedings, or other proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, the Indenture, any Derivative
Agreement, any Supplemental Credit Enhancement Agreement and any Supplemental Liquidity Agreement.

     Prior to the due presentment for registration of transfer of this Class B(2007-2) Note, the
Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture Trustee may treat the
Person in whose name this Class B(2007-2) Note (as of the day of determination or as of such other
date as may be specified in the Indenture) is registered as the owner hereof for all purposes,
whether or not this Class B(2007-2) Note be overdue, and neither the Issuer, the Indenture Trustee
nor any such agent shall be affected by notice to the contrary.

     The Indenture permits, with certain exceptions as therein provided, the amendment thereof and
the modification of the rights and obligations of the Issuer and the rights of the Holders of the
Notes under the Indenture at any time by the Issuer with the consent of the Holders of Notes
representing not less than 66 2/3%
of the Outstanding Dollar Principal Amount
of each adversely affected Series, Class or Tranche of Notes. The Indenture also contains
provisions permitting the Holders of Notes representing specified percentages of the Outstanding
Dollar Principal Amount of the Notes, on behalf of the Holders of all the Notes, to waive
compliance by the Issuer with certain provisions of the Indenture and certain past defaults under
the Indenture and their consequences. Any such consent or waiver by the Holder of this Class
B(2007-2) Note shall be conclusive and binding upon such Holder and upon all future Holders of this
Class B(2007-2) Note and of any Note issued upon the registration of transfer hereof or in exchange
hereof or in lieu hereof whether or not notation of such consent or waiver is made upon this Class
B(2007-2) Note. The Indenture also permits the Indenture Trustee to amend or waive certain terms
and conditions set forth in the Indenture without the consent of Holders of the Notes issued
thereunder.

     The term “Issuer” as used in this Class B(2007-2) Note includes any successor to the
Issuer under the Indenture.

     The Issuer is permitted by the Indenture, under certain circumstances, to merge or
consolidate, subject to the rights of the Indenture Trustee and the Holders of Notes under the
Indenture.

     The Class B(2007-2) Notes are issuable only in registered form in denominations as provided in
the Indenture, subject to certain limitations therein set forth.

9

 

     THIS CLASS B(2007-2) NOTE AND THE INDENTURE WILL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF THE STATE OF NEW YORK, INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATION LAW,
WITHOUT REFERENCE TO ANY CONFLICT OF LAW PROVISIONS THAT WOULD RESULT IN THE APPLICATION OF THE
LAWS OF ANY OTHER STATE.

     No reference herein to the Indenture and no provision of this Class B(2007-2) Note or of the
Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional,
to pay the principal of and interest on this Class B(2007-2) Note at the times, place, and rate,
and in the coin or currency herein prescribed.

     No recourse may be taken, directly or indirectly, with respect to the obligations of the
Issuer on the Notes or under the Indenture or any certificate or other writing delivered in
connection therewith, against (i) the Owner Trustee in its individual capacity, (ii) any owner of a
beneficial interest in the Issuer or (iii) any partner, owner, beneficiary, agent, officer,
director or employee of the Owner Trustee in its individual capacity, any holder of a beneficial
interest in the Issuer or any successor or assign of the Owner Trustee in its individual capacity,
except as any such Person may have expressly agreed (it being understood that the Owner Trustee has
no such obligations in its individual capacity). The Holder of this Class B(2007-2) Note by the
acceptance hereof agrees that, except as expressly provided in the Indenture and the Indenture
Supplement in the case of an Event of Default under the Indenture, the Holder shall have no claim
against any of the foregoing for any deficiency, loss or claim therefrom; provided,
however, that nothing contained herein shall be taken to prevent recourse to, and
enforcement against, the assets of the Issuer for any and all liabilities, obligations and
undertakings contained in the Indenture or in this Class B(2007-2) Note.

10

 

ASSIGNMENT

Social Security or taxpayer I.D. or other identifying number of assignee

                    

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto

(name and address of assignee)

the within Note and all rights thereunder, and hereby irrevocably constitutes and appoints
attorney, to transfer said Note on the books kept for registration thereof, with full power of
substitution in the premises.

	 	 	 	 	 	 	 
	Dated:

	 	 

	 	 

	 	*
	 

	 	 
	 	Signature Guaranteed:
	 	 

 

			
	*	 	NOTE: The signature to this assignment must correspond with the name
of the registered owner as it appears on the face of the within Note
in every particular, without alteration, enlargement or any change
whatsoever.

11

 

SCHEDULE A

PART I

INTEREST PAYMENTS

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Confirmation of
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	payment by or on
	Interest	 	Date of	 	Total Amount	 	Amount of	 	behalf of the Note
	Payment Date	 	Payment	 	of Interest Payable	 	Interest Paid	 	Issuance Trust
	First
	 	 	                    	 	 	 	                    	 	 	 	                    	 	 	 	                    	 
	Second
	 	 	                    	 	 	 	                    	 	 	 	                    	 	 	 	                    	 

[continue numbering until the appropriate number of interest payment dates for the Notes is
reached]

12

 

PART II

PRINCIPAL PAYMENTS

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Confirmation of
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	payment by or on
	Principal	 	Date of	 	Total Amount	 	Total Amount	 	behalf of the Note
	Payment Date	 	Payment	 	of Interest Payable	 	Paid	 	Issuance Trust
	First
	 	 	                    	 	 	 	                    	 	 	 	                    	 	 	 	                    	 
	Second
	 	 	                    	 	 	 	                    	 	 	 	                    	 	 	 	                    	 

[continue numbering until the appropriate number of installment dates for the Notes is
reached]

13exv10w1

 

Exhibit 10.1

Molina Contract Amendment

AGREEMENT NO. PSC: 06-630-8000-0010 A2

Between the State of New Mexico Human Services Department

and Molina Healthcare

Amendment No. 2 (“Amendment”) is entered into by and between the New
Mexico Human Services Department (hereinafter referred to “HSD”) and Molina
Healthcare (hereinafter referred to as “CONTRACTOR” OR “MCO”).

     WHEREAS, the parties have previously entered into an Agreement PSC:
06-630-8000-0010 Approved by the Department of Finance and Administration
(DFA) on July 1, 2005 (the “Agreement”) and

     WHEREAS, Article 37 of the Agreement allows for amendment of the
Agreement; and

     WHEREAS, the parties have determined that the term of the Agreement
should be extended for an additional year; and

     WHEREAS, HSD released a request for proposals (“RFP”) to provide
Medicaid managed care services, including Health Insurance Flexibility and
Affordability (HIFA) 1115 waiver, also known as State Coverage Insurance
(“SCI”), for HSD’s Medical Assistance Division (“MAD”); and

     WHEREAS, CONTRACTOR was selected by HSD in connection with the
RFP process as a party to provide SCI services and the parties entered into a
separate agreement to provide SCI services, such agreement known as, State
Coverage Insurance Agreement No. PSC: 06-630-8000-0024, as amended
(“SCI Contract”); and

     WHEREAS, the parties have determined that it would be beneficial to
coordinate certain aspects of the Agreement and the SCI Contract wherever
appropriate, including but not limited to Article 2, Section 2.14, regarding Care
Coordination and the requirement that the CONTRACTOR coordinate with the
SE; and Article 19 — Subcontracts; and

     WHEREAS, the parties recognize that the SCI program will be governed
solely by the SCI contract and the Salud! program will be governed by this
Agreement, as amended; and

     WHEREAS, changes to Federal or State law and regulation require
certain changes to the Agreement; and

1

 

     WHEREAS, based on the parties’ experience since implementation of the
Agreement, the parties have agreed to certain changes in the Agreement
beneficial to the Agreement’s goals;

     NOW THEREFORE, the parties do amend the Agreement as follows:

	 	1.	 	All terms, definitions and conditions stated in the Agreement and
not modified by this Amendment shall remain in full force and
effect. This Amendment shall become effective July 1, 2007,
provided it has been approved by the Department of Finance and
Administration, and the U.S. Department of Health and Human
Services, Center for Medicare/Medicaid Services (CMS). Any
reference to CMS in this document is a reference to the agency
formerly known as Health Care Financing Administration (HCFA);
	 
	 	2.	 	In the event of a conflict between the Agreement as amended
herein and the regulations promulgated by the Code of Federal
Regulations (CFR) for managed care organizations (MCOs) and
HSD, the federal and state regulations will prevail. This
Agreement, as amended, will take precedence when delays in the
promulgation of regulations present operational barriers in the
performance of this Agreement. HSD/MAD agrees that, in the
event of a material conflict between this Agreement and any
regulation effective after the date of execution of this Agreement,
the parties shall have the right to renegotiate to reach a mutually
agreeable resolution of the conflict and to memorialize that
agreement.

     IN WITNESS WHEREOF, the parties have executed this Amendment No.
2 as of the date of execution by the State Contracts Officer, below.

Article 2 (SCOPE OF WORK) Section 2.1.(1). is amended to read as follows:

The CONTRACTOR shall perform professional services, including, but not
necessarily limited to, the following:

	2.1	 	PROGRAM ADMINISTRATION

	 	(1)	 	Member Services

HSD/MAD shall implement procedures governing the following
activities by the CONTRACTOR or entities acting on behalf of the
CONTRACTOR: Development of information and educational
media; provision of materials explaining the enrollment options and
process to potential members; and provision of informational
presentations to eligible members, members, member advocates
and other interested parties.

2

 

The CONTRACTOR shall have a member services function that
coordinates communication with members and acts as a member
advocate. There should be sufficient staff to allow members to
resolve problems or inquiries.

The CONTRACTOR’S applicable staff shall meet, as requested,
with HSD/MAD staff on a periodic basis. These meetings are to
plan outreach and Medicaid enrollment activities and events which
will be jointly conducted by the CONTRACTOR and HSD/MAD
staff.

Article 2 (SCOPE OF WORK) Section 2.1.(2).C.ii. is amended to read as
follows:

	2.1.(2).C.ii.	 	define and submit annually to HSD/MAD a written copy of the UM
program description, UM plan and UM evaluation in which:

	 	(a)	 	the UM description includes the program structure and
accountability mechanisms;
	 
	 	(b)	 	the UM plan supports the goals described in the UM
program description. The plan will define specific
indicators that will be used for periodic performance
tracking and trending and processes or mechanisms for
assessment and intervention, based on principles of
continuous quality improvement; and
	 
	 	(c)	 	a comprehensive UM program evaluation includes an
evaluation of the overall effectiveness of the UM plan
including the impact of the plan on the quality of
utilization management and administrative activities. The
evaluation requires an overview of the UM activities and an
analysis of any impact from the previous reporting period.
The review and analysis will be used in the development of
the following year’s UM plan.

Article 2 (SCOPE OF WORK) Section 2.1.(2).F.ii.(a). is amended to read as
follows:

	2.1.(2).F.ii.	(a)	 	objectives, scope, and Performance Improvement
Projects (PIP) plan and activities consistent with federal
regulation and Quality Assessment and Performance
Improvement Program requirements for PIP and

3

 

Performance Measurement Program as per 42 CFR 438.240. For more detailed information refer to
“EQRO Managed Care Organization Protocol” found at
http://www.cms.hhs.gov/MedicaidManagCare/.

Article 2 (SCOPE OF WORK) Section 2.1.(2).G.ii. is amended to read as follows:

	2.1.(2).G.ii. 	 	have an annual QI work plan that includes immediate objectives for each contract
period and long-term objectives for the entire contract period. This work plan shall contain the
scope of the objectives, activities planned, timeframe, data indicators for tracking performance
and other relevant information;

Article 2 (SCOPE OF WORK) Section 2.1.(2).G.ix. is amended to read as follows:

	2.1.(2).G.ix. 	 	have written policies and procedures for continuity and coordination of care as they
relate to the delivery of physical health services and coordinating care for ISHCN with the Single
Statewide Entity (SE) and/or other state departments;

Article 2 (SCOPE OF WORK) Section 2.1.(2)J.iv. is amended to read as follows:

	2.1.(2).J.iv. 	 	an evaluation of the overall effectiveness of the QI program, used for the
development of the following year’s plan.

Article 2 (SCOPE OF WORK) Section 2.1.(2).N.i. and ii. is amended to read as follows:

	2.1.(2).N.i. 	 	HSD/MAD shall retain the services of an EQRO in accordance with the Social Security
Act, Section 1902 (a)(30) [C], and the CONTRACTOR shall cooperate fully with that organization and
prove to that organization the CONTRACTOR’S adherence to HSD/MAD’s managed care regulations and
quality standards as set forth in MAD Policy Section 8.305.8.

	2.1.(2).N.ii. 	 	HSD/MAD shall also contract with an EQRO to audit a statistically valid sample
of the CONTRACTOR’S physical health UM decisions, including authorizations, reductions,
terminations and denials. This audit is intended to determine if authorized service levels are
appropriate with respect to accepted standards of clinical care. The EQRO will audit the
CONTRACTOR’S Performance Improvement Project (PIP) and Performance Measurement Programs based on CMS criteria. The CONTRACTOR shall cooperate fully with that organization.

4

 

Article 2 (SCOPE OF WORK) Section 2.1.(2).P. is amended to read as follows:

	2.1.(2).P. 	 	Disease Management
	 
	 	 	Disease management is a comprehensive plan following nationally recognized components for
chronic disease interventions including population identification/stratification process,
collaborative practice models, patient self-management education process, evidence-based practice
guidelines, process and outcomes measurements, and internal quality improvement processes.
	 
	 	 	Disease management (DM) applies a strategy of delivering health services using
interdisciplinary clinical teams, continuous analysis of relevant data, and cost-effective
technology to improve the health outcomes of individuals with specific diseases. HSD/MAD seeks to
improve the health status of all individuals in the population with specific diseases. DM programs
and Performance Measures are two of the tools that HSD/MAD has chosen to use to measure the
CONTRACTOR’S ability to impact health outcomes. Examples of chronic illnesses/diseases are:
Diabetes, Cardiovascular Disease, Chronic Obstructive Pulmonary Disease, Obesity and Asthma.
HSD/MAD expects that each CONTRACTOR shall improve its ability to manage chronic illness to meet
the goals set by HSD/MAD for DM.

Article 2 (SCOPE OF WORK) Section 2.1.(2).R. is amended to read as follows:

	2.1.(2).R. 	 	Managed Care Performance Measures for 2007 Salud! Managed Care Program

	 	i.	 	Managed Care Performance Measures:
	 
	 	 	 	The CONTRACTOR will be provided with a copy of the HSD/MAD’s performance measures and relative
portions of the HSD/MAD Strategic Plan.
	 
	 	 	 	For capitation payments made on or after June 30 of the applicable contract year, the
CONTRACTOR shall withhold one-half of one percent (0.5%), net of premium taxes, of HSD/MAD’s
capitation payments and hold such funds on HSD/MAD’s behalf. The withheld funds shall be released
to

5

 

	 	 	 	the CONTRACTOR, employing a Pay for Performance methodology, no sooner than July 1st and
no later than October 31st after the applicable contract year only if, in the judgment
of HSD/MAD, performance targets in the contract are achieved.
	 
	 	 	 	HEDIS will be the methodology used for all performance measures, unless HSD/MAD determines to use a
non-HEDIS methodology or a HEDIS measure does not exist.
	 
	 	 	 	For those performance measures utilizing a HEDIS methodology, HSD/MAD agrees that the measures will
be evaluated using the HEDIS technical specifications applicable to the measurement year.
	 
	 	 	 	For those measures that HSD/MAD determines to use a non-HEDIS measure, or for which a HEDIS measure
does not exist, HSD/MAD will provide the CONTRACTOR the methodology to be used to measure the
CONTRACTOR’S performance before July 1 of the applicable contract year.
	 
	 	 	 	The CONTRACTOR shall collaborate with HSD/MAD in all approaches to conduct performance measure and
quality improvement activities and all reporting requirements established by the New Mexico
Legislature.
	 
	 	 	 	Withheld funds shall be released to the CONTRACTOR based on the following scoring system for each
of the performance measures listed below:

	 	(a)	 	PM #1 — Annual Dental Visit (Combined Rate) shall be worth 10 points;
	 
	 	(b)	 	PM #2 — Breast Cancer Screening shall be worth 10 points;
	 
	 	(c)	 	PM #3 — Comprehensive Diabetes Care (HbA1c Testing) shall be worth 10 points;
	 
	 	(d)	 	PM #4 — Well Child visits in the first fifteen (15) months of life shall be worth 5
points; Well Child visits for ages three, four, five and six years of age shall be worth 5 points;
	 
	 	(e)	 	PM #5 — Children and Adolescents Access to Primary Care Practitioners (PCPs) ages twelve
(12) to twenty-

6

 

	 	 	 	four (24) months shall be worth 2.5 points; ages twenty-five (25) months through six (6) years
shall be worth 2.5 points; ages seven (7) through eleven (11) shall be worth 2.5 points; and ages
twelve (12) through nineteen (19) years shall be worth 2.5 points;
	 
	 	(f)	 	PM #6 — Childhood Immunization Status (Combo 2) shall be worth 10 points;
	 
	 	(g)	 	PM #7 — Use of Appropriate Medications for People with Asthma ages five to nine years shall be
worth 5 points; ages ten (10) through seventeen (17) years shall be worth 5 points;
	 
	 	(h)	 	PM #8 — Cervical Cancer Screening shall be worth 10 points;
	 
	 	(i)	 	PM #9 — Encounter Data Reporting shall be worth 10 points; and
	 
	 	(j)	 	PM #10 — Timely submission, accuracy, and analysis of HSD/MAD required reports shall be worth
10 points.

The percentage of the CONTRACTOR’S withheld funds to be released shall be calculated by summing all
earned points, dividing the sum by one hundred (100), and converting to a percentage (Withheld
Percentage). No partial number of points will be assigned if the CONTRACTOR fails to completely
meet performance measures described in (a) through (i) above, except with respect to performance
measure (j) PM #10. Compliance relative to timely submission, accuracy and analysis will be
considered based upon quarterly submissions and such criteria shall be applied consistently across
all MCOs. The CONTRACTOR shall comply with all PM #10 requirements or be liable to lose between two
and one half (2.5) points per quarter and ten (10) points annually. The maximum penalty will be
assessed for repeated noncompliance within the applicable contract year. Other penalties or
sanctions may be imposed for incomplete, inaccurate or untimely reports/analysis. HSD/MAD staff
shall notify the CONTRACTOR, in writing, of changes to required reports at least forty-five (45)
business days prior to implementing the reporting change. The CONTRACTOR shall he held harmless if
HSD/MAD fails to meet this requirement for any

7

 

	 	 	 	changes to existing reports. However, the CONTRACTOR is not otherwise relieved
of any responsibility for the submission of late, inaccurate, or otherwise incomplete
reports (See section 2.12.(1).D. Reporting). Points assigned for the other performance
measures will be all or none (e.g., ten (10) points or zero (0)).
	 
	 	 	 	To the extent that the following performance measures are not based on HEDIS measures, the
parties agree that the measure shall be evaluated based on the standard reports for such
measures already submitted to HSD/MAD by the CONTRACTOR, provided that HSD/MAD shall have the
right to audit and validate the information or results as reported by CONTRACTOR.
	 
	 	ii.	 	Performance Measures Requirements:
	 
	 	 	 	The performance measures shall be evaluated using the following criteria:

	 	(a)	 	PM #1 — Annual Dental Visit (Combined Rate)
	 
	 	 	 	The percentage of enrolled members two to twenty-one years of age, who had at least one dental
visit during the measurement year. The final audited HEDIS score for the
Dental Care Combined Rate will be fifty percent (50%) or greater.
	 
	 	(b)	 	PM #2 — Breast Cancer Screening
	 
	 	 	 	The percentage of enrolled women 40 through 69 years of age who had a mammogram to screen for
breast cancer during the measurement period. The final audited HEDIS score for
the Breast Cancer Screening will be fifty-three percent (53%) or greater.
	 
	 	(c)	 	PM #3 — Comprehensive Diabetes Care (HbA1c Testing)
	 
	 	 	 	The percentage of members eighteen (18) through seventy-five (75) years of age with diabetes
(Type 1 and Type 2) who had an HbA1c Test during the measurement year. The
final audited HEDIS score for the Comprehensive Diabetes Care (HbA1c Testing)
will be eighty-two percent (82%) or greater.

8

 

	 	(d)	 	PM #4 — Well Child Visits
	 
	 	 	 	The percentage of enrolled members who turned fifteen (15) months during the measurement
year who had six (6) or more Well Child visits with a primary care practitioner during the
first fifteen (15) months of life. And the percentage of enrolled members who were three (3)
through six (6) years of age who received one or more Well Child visits with a primary care
practitioner during the measurement year. The final audited HEDIS score for Well Child visits in
the first fifteen (15) months of life will be forty-five percent (45%) or greater. Well Child
visits for ages three, four, five and six years of age will be sixty-two percent (62%) or greater.
	 
	 	(e)	 	PM #5 — Children and Adolescents Access to Primary Care Practitioners (PCPs)
	 
	 	 	 	The percentage of enrollees twelve (12) to twenty-four (24) months, and twenty-five (25)
months through six (6) years who had a visit with a primary care practitioner during the
measurement year. Ages seven (7) through eleven (11) years, and twelve (12) through nineteen (19)
years who had a visit with a primary care practitioner during the measurement year or the year
prior to the measurement year. The final audited HEDIS score for Children Access to Primary
Care Practitioners for ages twelve (12) months to twenty-four (24) months will be ninety-two
percent (92%) or greater; ages twenty-five (25) months to six (6) years will be eighty-one percent
(81%) or greater; ages seven (7) to eleven (11) years will be eighty-two percent (82%) or greater;
ages twelve (12) through nineteen (19) years will be seventy-nine percent (79%) or greater.
	 
	 	(f)	 	PM #6 — Childhood Immunizations (Combo 2)
	 
	 	 	 	The percentage of children two (2) years of age who received Combo 2 immunizations on
or before their second birthday. The final audited HEDIS score for Childhood
Immunizations Status (Combo 2) will be seventy-six percent (76%) or greater.

9

 

	 	(g)	 	PM #7: Use of Appropriate Medications for People
with Asthma
	 
	 	 	 	The percentage of members five (5) through nine (9) years of age, and ten (10) through
seventeen (17) years of age, who are identified as having persistent asthma and who
were appropriately prescribed medication during the measurement year. The final audited
HEDIS score for Use of Appropriate Asthma Medications ages five (5) to nine (9) years of age
will be eighty-six percent (86%) or greater; for ages ten (10) to seventeen (17) years of age will
be eighty-six percent (86%).
	 
	 	(h)	 	PM #8 — Cervical Cancer Screening.
	 
	 	 	 	The percentage of enrolled women 21 through 64 years of age who received one or more Pap
tests to screen for cervical cancer during the measurement period. The final audited
HEDIS score for the Cervical Cancer Screening will be sixty-nine percent (69%) or greater.
	 
	 	(i)	 	PM #9 — Encounter Data Reporting
	 
	 	 	 	The CONTRACTOR shall submit 99 percent (99%) of all required encounter data on a timely
basis for submissions and necessary re-submissions as set forth in the Contract. The
submissions and required re-submissions shall have an annual error rate of three percent (3%) or
less for at least ninety percent (90%) of the files.
	 
	 	(j)	 	PM #10 — Timely Submission, Accuracy, and Analysis of HSD/MAD Required Reports
	 
	 	 	 	The CONTRACTOR shall achieve and maintain compliance with all format and content changes
required by HSD/MAD reports. The CONTRACTOR shall submit a systems analysis of the data
interpretation (i.e., tracking and trending). “Timely submission” shall mean that the report was
submitted on or before the date it was due. “Accuracy” shall 

10

 

	 	 	 	mean the report was substantially
prepared according to the specific written guidance, including reporting template,
provided by HSD/MAD to the CONTRACTOR. The CONTRACTOR shall not be penalized if an error in a
previously submitted report is identified by the CONTRACTOR and reported to HSD/MAD prior to
HSD/MAD’s identification of the error. Corrected reports in this type of situation will be
submitted to HSD/MAD in a timeframe determined by HSD/MAD after consulting with the CONTRACTOR.

	 	iii.	 	Retention and Release of Withheld Funds

	 	(a)	 	The retention of funds withheld shall be accomplished as follows:
	 
	 	 	 	The CONTRACTOR shall place all funds described in section R.i. (Managed Care Performance
Measures) in a separate account and shall provide to HSD/MAD a monthly statement of the account in
order to verify that the withheld funds are being maintained during the period of time
specified in this contract.
	 
	 	(b)	 	The release of the funds withheld shall be made as follows:
	 
	 	 	 	The funds in the withheld funds account shall be released for use by the
CONTRACTOR only after HSD/MAD has submitted in writing that in HSD/MAD’s judgment, the performance
targets in the contract have been achieved for the period of time specified in the contract.
HSD/MAD shall provide written confirmation no sooner than July 1 and no later than October
31, of the appropriate contract year, or within thirty (30) days of verification, whichever comes
first.
	 
	 	(c)	 	The release of funds withheld shall be calculated by taking the amount of capitation
payments withheld by the CONTRACTOR pursuant to section R.i. as of June 30th of the
applicable contract year and multiplying by the Withheld Percentage for the applicable contract
year.

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	 	(d)	 	Funds remaining in the withheld funds account
as a result of the CONTRACTOR’S inability to
meet performance goals shall be released by
HSD/MAD to the CONTRACTOR and be
entirely appropriated to the following two
initiatives. The final distribution of the dollars
for these initiatives shall be determined by
HSD/MAD. The CONTRACTOR shall submit a
report detailing all expenditures to HSD/MAD
on a quarterly basis until all funds are
disbursed.

	 	1.	 	The purpose of the Pay for Performance
(P4P) Program is to recognize and
reward providers who share HSD/MAD’s
commitment to improving health,
achieving superior clinical outcomes,
and reducing administrative burdens to
increase clinical care time.

It is the intent of HSD/MAD to improve
immunization rates for all children
through a collaborative effort involving
the CONTRACTOR, the Department of
Health, local health departments, and a
spectrum of key stakeholders across the
state.

The CONTRACTOR will work with
HSD/MAD to develop a P4P initiative to
improve the state immunization rate by
(a) providing the immunization and (b)
reporting immunizations.

The CONTRACTOR, in conjunction with
HSD/MAD shall establish and
implement measures that can be
compared to national data and evaluate
progress towards attaining the
established target for the measure.

	 	2.	 	The CONTRACTOR will establish and
provide for HSD/MAD approval a
financial incentive model that rewards
CONTRACTOR providers for the
achievement of outcomes and
adherence to protocols in childhood
immunizations.

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The model must include minimum
requirements for provider participation
and the methodology for distribution of
the financial incentive. At a minimum,
the model must include a mechanism to
measure childhood immunizations,
determine an increase in childhood
immunizations and determine an
increase in utilization of the New Mexico
State Immunization Information System
(SIIS).

The CONTRACTOR must establish a
consistent means for comparing
outcomes based on CONRACTOR
experience and national standards as
well as targets established by
HSD/MAD.

The CONTRACTOR must demonstrate
a statistically significant increase in the
percent of children receiving
immunizations during the year with the
goal of meeting national standards.

	 	vii.	 	Tracking Measures that are not subject to the
Managed Care Withhold or Challenge Pool

The following measures are not subject to the
Managed Care Withhold and shall be reported to
HSD/MAD:

	 	(a)	 	TM #1 — Breast Cancer Screening
	 
	 	(b)	 	TM #2 — Children/Adolescent Well Care
Visits/EPSDT Screens
	 
	 	(c)	 	TM #3 — Teen Maternity Care
	 
	 	(d)	 	TM #4 — Obesity
	 
	 	(e)	 	TM #5 — Customer Support Services

13

 

	 	(f)	 	TM #6 — EPSDT Preventive Dental Care
	 
	 	(g)	 	TM #7 — Cervical Cancer Screening
	 
	 	(h)	 	TM #8 — Diabetes Disease Management
(HbA1c Testing)
	 
	 	(i)	 	TM #9 — EPSDT Waiver Services
	 
	 	(j)	 	TM #10 — Childhood Immunizations (0-35
months)
	 
	 	(k)	 	TM #11 — Provider Payment Timeliness

Article 2 (SCOPE OF WORK) Section 2.1.(2).U.i.(d). through (j) is amended to read as follows:

	2.1.(2)U.i.	(d)	 	develop and implement written policies and procedures
governing how care coordination shall be provided for
members with special health care needs, as required by
federal regulation. These policies shall address the
development of a member’s individual plan of care, based on
a comprehensive assessment of the goals, capacities and
medical condition of the member and the needs and goals of
the family. Also included shall be the criteria for evaluating a
member’s response to care and revising the plan when
indicated. A member and family shall be involved in the
development of the plan of care, as appropriate. A member
or family shall have a right to refuse care coordination or
case management;

	 	(e)	 	develop and implement written policies and procedures
governing how care coordination shall be provided for
members with physical health and behavioral health complex
needs. These policies shall address mechanisms for
exchanging relevant clinical information between the
CONTRACTOR’S and the SE’s care coordinators and
Medical Directors, as permitted under federal privacy laws,
to ensure services are delivered in a coordinated manner. In
addition, the policies shall address coordination with other
entities such as protective services and the schools to
ensure services across various systems are coordinated for
these members, in accordance with federal privacy laws;

14

 

	 	(f)	 	develop and implement policies and procedures which
define care coordination, including the targeted case
management programs, according to HSD/MAD policy on
each. Direct, face-to-face meetings may be required as
indicated for the targeted case management programs;
	 
	 	(g)	 	measure and evaluate outcomes and monitor progress of
members to ensure that services are received and assist in
resolution of identified problems and prevent duplication
of services;
	 
	 	(h)	 	specify how care coordination shall be supported by an
internal information system;
	 
	 	(i)	 	develop and implement policy and procedures to establish
working relationships between care coordinators and providers; and
	 
	 	(j)	 	continue to work with the School Based Health Center
providers to identify and coordinate with the child’s primary care provider (PCP).

Article 2 (SCOPE OF WORK) Section 2.1.(2).U.ii.(d). is amended to read as follows:

	2.1.(2).U.ii.(d).	 	 	Coordination With Waiver Programs. The CONTRACTOR
shall provide all covered benefits to members who are
waiver participants. The applicable waiver programs include,
but are not limited to, the Developmentally Disabled Waiver,
the Disabled and Elderly Waiver, the Medically Fragile
Waiver and the AIDS Waiver. An integral part of each
waiver is the provision of case management. The
CONTRACTOR shall coordinate closely with the waiver case
manager to ensure that case information is shared, that
necessary services are provided and that they are not
duplicative. HSD/MAD shall monitor utilization to ensure that
the CONTRACTOR provides to members who are waiver
participants all benefits included in the CONTRACTOR
benefit package. The CONTRACTOR shall have policies
and procedures governing coordination of services with
home and community-based Medicaid waiver programs to
assist with complex care coordination.

15

 

Article 2 (SCOPE OF WORK) Section 2.2.(5). is amended to read as follows:

	2.2.(5). 	 	Special Situations

	 	A.	 	Newborn Enrollment

Newborns of Medicaid eligible CONTRACTOR enrolled
mothers are eligible for a period of twelve (12) months
starting with the month of birth. The newborn is enrolled
retroactive to the date of birth with the same CONTRACTOR
the mother had during the birth month, as soon as the
newborn’s Medicaid eligibility is approved. If the child’s
mother is not a member of a CONTRACTOR at the time of
the birth, then the child is enrolled during the next applicable
enrollment cycle.

	 	B.	 	Hospitalized Members

If the member is hospitalized at the time of disenrollment
from Salud! or upon an approved switch from one contractor
to another, the CONTRACTOR shall be responsible for
payment for all covered inpatient facility and professional
services provided within a licensed acute care facility, or a
non-psychiatric specialty unit or hospitals as designated by
the New Mexico Department of Health. The payer at the
date of admission (MCO or FFS) remains responsible for
services until the date of discharge. Services provided
within a psychiatric unit of an acute care hospital are the
responsibility of the SE and are excluded under this
Amendment.

For the purpose of this CONTRACT:

	 	1.	 	When a member is moved from or to a PPS
exempt unit within an acute care hospital, the
move is considered a “discharge.”
	 
	 	2.	 	When a member is moved from or to a
specialty hospital as designated by DOH or
HSD/MAD, the move is considered a
“discharge.”
	 
	 	3.	 	When a member is moved from or to a PPS
exempt hospital, the move is considered a
“discharge.”
	 
	 	4.	 	When a member leaves the acute care hospital
setting to a home/community setting, the move
is considered a “discharge.”

16

 

	 	5.	 	When a member leaves the acute care hospital
setting to an institutional setting, the
“discharge” date is based upon approval of the
abstract and/or HSD/MAD.

Note: It is not a “discharge” when a member is moved from
one acute care facility to another acute care facility, including
out-of-state acute care facilities.

If a member is hospitalized and is disenrolled from managed
care/FFS due to a loss in Medicaid coverage, the MCO or
FFS, respectively, is only financially liable for the inpatient
hospitalization and associated professional services until
such time that the member/client is determined to be
ineligible for Medicaid.

	 	C.	 	Native Americans

The CONTRACTOR shall:

	 	i.	 	make documented efforts to contract with the
appropriate urban Indian clinics, tribally owned health
centers, and IHS facilities for the provision of
medically necessary services;
	 
	 	ii.	 	ensure that translation services are reasonably
available when needed, both in providers’ offices and in contacts with the CONTRACTOR;
	 
	 	iii.	 	ensure appropriate medical transportation for Native American members residing in rural and remote areas; and
	 
	 	iv.	 	ensure that culturally appropriate materials are available to Native Americans.

	 	D.	 	Members Placed in Nursing Facilities.

If a member is placed in a nursing facility for what is
expected to be a long- term or permanent placement, the
CONTRACTOR remains responsible for the member until
the member is disenrolled by HSD/MAD. Disenrollment shall
be defined by HSD/MAD to include the approval date of the
abstract and/or other requirements. Failure of a nursing
facility to maintain and/or submit a timely abstract
authorization for an institutionalized member that causes the

17

 

system to enroll the member into managed care is
considered an error in enrollment. The CONTRACTOR is
not responsible for payment of any medical services
delivered and all capitations shall be recouped.

	 	E.	 	Members Receiving Hospice Services.

Members who have elected and are receiving hospice
services at the time of enrollment shall be exempt from
enrolling in an MCO unless they revoke their hospice
election.

Article 2 (SCOPE OF WORK) Section 2.3.(14).A.i. is amended to read as
follows:

	2.3.(14). 	 	Standards For Provider Credentialing and Recredentialing

	 	A.	 	Individual Providers

	 	i.	 	The CONTRACTOR shall have written policies and
procedures for the credentialing process that may not
be discriminatory under applicable state or federal
law, which include the CONTRACTOR’S initial
credentialing of practitioners, as well as its
subsequent re-credentialing, recertifying and/or re-
appointment of practitioners. The credentialing
process shall be completed within one hundred eighty
(180) days from receipt of a fully completed
application and all required documentation unless
there are extenuating circumstances.

Article 2 (Scope of Work) Section 2.4 is amended to read as follows:

	2.4	 	Benefits/Services

The CONTRACTOR shall be required to provide a comprehensive,
coordinated and fully integrated system of health care services. The
CONTRACTOR does not have the option of deleting access to benefits
from the Medicaid defined benefit package. Access to Medicaid benefits
must be available for physical health services directly by the
CONTRACTOR’S network or with respect to behavioral health services
through the CONTRACTOR’S referral and coordination system to the
Statewide Entity.

Behavioral health services provided by the CONTRACTOR’S network
providers will be covered by the CONTRACTOR even when the primary

18

 

diagnosis is a behavioral health diagnosis. Facility costs, including
emergency room costs, will be covered by the CONTRACTOR when billed
on an acute care/general hospital facility claim form, including behavioral
health services provided by hospital staff.

Laboratory and Radiology Services

The lab and radiology costs shall be the responsibility of the MCO when a
BH provider orders lab or radiology work that is performed by an outside,
independent laboratory or radiology facility, including those lab and
radiology services provided for persons within a psychiatric unit, a
freestanding psychiatric hospital or the UNM Psychiatric emergency room.

Lab and radiology services shall be the responsibility of the SE when they
are provided within and billed by a free standing psychiatric hospital, a
PPS exempt unit of a general acute care hospital or UNM Psychiatric ER.
In the event that a psychiatrist orders lab work but completes that lab work
in their office/facility and bills for it, the SE is responsible for the payment.

The following services are included in the covered benefit package of this
Agreement:

Article 2 (SCOPE OF WORK) Section 2.4.(23). “Pregnancy Termination
Procedures” is deleted. Section 2.4.(23). is added to now read as follows:

	2.4.(23). 	 	Telehealth Services

The benefit package will include telehealth services consistent with
the HSD/MAD Program Policy Manual.

Article 2 (SCOPE OF WORK) Section 2.4.(27).C. is amended to read as
follows:

	2.4.(27).C.	 	The CONTRACTOR shall make preventive services available to
members. The CONTRACTOR shall periodically remind and
encourage their members to use benefits, including physical
examinations, which are available and designed to prevent illness
(e.g., HIV counseling and testing for pregnant women).
	 
	 	 	The services shall follow current national standards and are
recommended by the U.S. preventive services task force, the
Centers for Disease Control and Prevention, and the American
College of Obstetricians and Gynecologists.

19

 

Article 2 (SCOPE OF WORK) Section 2.6.(13). is amended to read as follows:

	2.6.(13).	 	Individuals with Special Health Care Needs Performance
Measure
	 
	 	 	The CONTRACTOR shall initiate a quality strategy related to the
identification and care of ISHCN members within the QM annual
plan utilizing a performance measure specific to ISHCN.

Article 2 (SCOPE OF WORK) Section 2.9.(3).B. is amended to read as follows:

	2.9.(3).B.	 	Notice of CONTRACTOR Action
	 
	 	 	The CONTRACTOR shall mail a notice of action to the member or
provider and those parties affected by the decision within ten (10)
days of the date of an action for previously authorized services as
permitted under 42 CFR 431.213 and 431.214 and within fourteen
(14) days of the action for newly requested services. Denials of
claims which may result in client financial liability require immediate
notification. The notice must contain, but not be limited to, the
following:

Article 2 (SCOPE OF WORK) Section 2.9.(7).B. is amended to read as
follows:

	2.9.(7).	 	Reporting

	 	B.	 	The CONTRACTOR shall provide to HSD/MAD monthly
reporting of all provider and consumer grievances utilizing
the state provided reporting templates and grievance codes.
The CONTRACTOR shall provide a quarterly report to
HSD/MAD of the analysis of all provider and member
grievances received from or about Medicaid members, by
the CONTRACTOR or its subcontractors, during the quarter.
The analysis will include the identification of any indications
of trends as well as any interventions taken to address those
trends. This reporting will adhere to the timelines and
procedures set forth in Section 2.12(2). In addition, the
CONTRACTOR shall provide monthly aggregate reporting,
as required by HSD/MAD, of all grievances including those
informal grievances.

20

 

Article 2 (SCOPE OF WORK) Section 2.10.(7). is amended to read as
follows:

	2.10.(7).	 	Inspection and Audit for Solvency Requirements

	 	 	The CONTRACTOR shall meet all requirements for licensure within
the State with respect to inspection and auditing of financial
records. The CONTRACTOR shall provide to HSD/MAD and/or its
designee, all financial records required by HSD/MAD or its
designee so that they may inspect and audit the CONTRACTOR’S
financial records at least annually or at HSD/MAD’s discretion.

Article 2 (SCOPE OF WORK) Section 2.10.(8).A.ii. is amended to read as
follows:

	2.10.(8).A.ii.	 	 The CONTRACTOR is required to date-stamp all claims in a
manner that will allow determination of the calendar date of receipt.
The CONTRACTOR shall pay ninety percent (90%) of all clean
claims from practitioners who are in individual or group practice or
who practice in shared health facilities within thirty (30) days of date
of receipt, and shall pay ninety-nine percent (99%) of all such clean
claims within ninety (90) days of receipt. A “clean claim” means a
manually or electronically submitted claim from a participating
provider that contains substantially all the required data elements
necessary for accurate adjudication, whether paid or denied,
without the need for additional information from outside of the
health plan.

Article 2 (SCOPE OF WORK) Section 2.10.(8).A.iii.(d). is amended to read as
follows:

	2.10.(8).A.iii.(d). 	 	The CONTRACTOR shall be required to report the number
and allowed amount of clean claims that were not processed
within the 45-day HSD/MAD requirement, including the
amount of interest paid to providers. Such reports will be
submitted in a time frame determined by HSD/MAD.

Article 2 (SCOPE OF WORK) Section 2.11.(11). is added to read as follows:

	2.11.(11). 	 	EMPLOYEE EDUCATION CONCERNING FALSE CLAIMS
	 
	 	 	The CONTRACTOR and all subcontractors shall:

	 	A.	 	Establish written policies for all employees, agents, or
contractors, that provide detailed information regarding the
New Mexico Medicaid False Claims Act, NMSA 1978, §§27-14-1, et seq.; and the Federal False Claims Act established
under sections 3729 through 3733 of title 31, United States
Code, administrative remedies for false claims and
statement established under chapter 38 of title 31, United
States Code, including but not limited to, preventing and

21

 

	 	 	 	detecting fraud, waste, and abuse in Federal health care
programs (as defined in section 1128B(f) of the Social
Security Act);
	 
	 	B.	 	Include as part of such written policies, detailed provisions
regarding the entity’s policies and procedures for detecting
and preventing fraud, waste and abuse; and
	 
	 	C.	 	Include in any employee handbook, a specific discussion of
the laws described in subparagraph (A), the rights of
employees to be protected as whistleblowers, and the
CONTRACTOR’S or subcontractor’s policies and
procedures for detecting and preventing fraud, waste, and
abuse.

	 	 	HSD/MAD may, at its sole discretion, exempt the PROVIDER from
the requirements set forth in this section; however, HSD/MAD shall
not exclude the CONTRACTOR or subcontractor, if the
CONTRACTOR or subcontractor receives at least $5,000,000 in
annual payments from the HSD/MAD.
	 
	 	 	The following definitions apply to this section:

	 	1.	 	An “employee” includes any officer or employee of
the CONTRACTOR.
	 
	 
	 	2.	 	A “subcontractor” or “vendor” includes any agent or
person which or who, on behalf of the CONTRACTOR,
furnishes, or otherwise authorizes the furnishing of Medicaid
or other health care program items or services, performs
billing or coding functions or is involved in monitoring of
health care provided by the PROVIDER.

Article 2 (SCOPE OF WORK) Section 2.12. paragraph one is amended to
read as follows:

	2.12	 	REPORTING
	 
	 	 	The CONTRACTOR shall provide to HSD/MAD routine managerial,
financial, utilization and quality reports. The content, format, and schedule
for submission shall be determined by HSD/MAD in advance for the
financial reporting period and shall conform to reasonable industry and/or
to CMS standards. HSD/MAD shall notify CONTRACTOR, in writing, of
changes to required/routine reports at least forty-five (45) business days
prior to implementing the reporting change. The CONTRACTOR shall be
held harmless if HSD/MAD fails to meet this requirement for any changes

22

 

	 	 	to existing reports. However, the CONTRACTOR is not otherwise relieved
of any responsibility for the submission of late, inaccurate, or otherwise
incomplete reports (see section 2.12.(1).D. Reporting). The first
submission of a report revised by HSD/MAD to include a change in data
requirement or definition will not be subject to penalty for accuracy.
HSD/MAD, in order to reduce administrative duplication, may provide
exceptions to the requirement for the submission of specific hard copy
reports. HSD/MAD will notify each MCO regarding the change in routine
reporting requirements.

Article 2 (SCOPE OF WORK) Section 2.12.(3).H. is amended to read as
follows:

	2.12.(3).H.	 	Financial Reporting Requirement
	 
	 	 	Reports post-marked with the due date will be considered as timely
submission. If report due date falls on a weekend or holiday,
receipt of the report the next business day is acceptable.
	 
	 	 	Reporting requirements include, but are not limited to, the following:

	 	 	 	 	 	 	 
	Definition	 	Frequency	 	Objective	 	Due Date
	Calendar-Year 

Independently Audited 

Financial Statements

	 	Annual
	 	Examine for Solvency
and CMS Compliance
	 	June 1
	 
	 	 	 	 	 	 
	Calendar-Year Medicaid-
Specific Audited Schedule
of Revenue and Expenses

	 	Annual
	 	Examine and
determine for Solvency
and CMS Compliance
	 	June 1
	 
	 	 	 	 	 	 
	Quarterly Medicaid
specific unaudited
Schedule of Revenue and
Expenses

	 	Quarterly
	 	Examine and compare
Administrative
Expenditures by Line
of Business
	 	45 days from
the end of
quarter or the
15th day of the
second month
following the
end of a
quarter

23

 

	 	 	 	 	 	 	 
	Definition	 	Frequency	 	Objective	 	Due Date
	Department of Insurance
Reports

	 	Quarterly
Quarters 1, 2
& 3 (45 days
from end of
quarter)
annually on
3/1
	 	Examine and confirm
Solvency and CMS
Compliance
	 	45 days from
the end of
quarter or the
15th of the
month, March 1
for Annual
Statement
	 
	 	 	 	 	 	 
	Expenditures by Category
of Services for hospital,
pharmacy, physician,
dental, transportation
and
other

	 	Quarterly
	 	Determine Cost

Efficiency
	 	45 days from
end of Qtr or
the 15th day of
the second
month following
the end of the
quarter
	 
	 	 	 	 	 	 
	Expenditures of services
to FQHCs and RHCs

	 	Quarterly
	 	Enable HSD/MAD to
make wraparound
payments to FQHCs
and RHCs
	 	30 days from
end of Qtr
	 
	 	 	 	 	 	 
	Expenditures
specifically
made to IHS and tribal
638
facilities

	 	Quarterly
	 	Enable HSD/MAD to
reconcile the payments
made by the
CONTRACTOR to IHS
and tribal 638
facilities,
against the
supplemental
capitation payments
made by HSD/MAD to
the CONTRACTOR
	 	30 days from
end of Qtr
	 
	 	 	 	 	 	 
	Identify the Fidelity
Bond
or Insurance Protection
by
Amount of Coverage in
relation to Annual
Payments. Identify MCO
Directors, Officers
Employees or Partners.

	 	Annual
	 	Examine and confirm
Solvency and CMS
Compliance
	 	Initially and
upon renewal
	 
	 	 	 	 	 	 
	Analysis of Stop-loss
protection with Detail
of
Panel Composition

	 	Quarterly
	 	Examine to determine
Solvency, Rate
Payment.
	 	30 days from
end of Qtr

24

 

	 	 	 	 	 	 	 
	Definition	 	Frequency	 	Objective	 	Due Date
	Reinsurance Policy

	 	Annual
	 	Assess Solvency and
CMS Compliance
	 	Initially and
upon renewal
	 
	 	 	 	 	 	 
	Cash Reserve Statement

	 	Quarterly
	 	Examine and confirm
Solvency and CMS Compliance
	 	30 days from
end of Qtr

	 
	 	 	 	 	 	 
	Claims Payment 

Timeliness

	 	Monthly
	 	
Compliance with the
BBA payment
timeliness
 requirements for 30-
days and 90-days.
	 	15 days from end of the
month

Article 2 (SCOPE OF WORK) Section 2.12.(8). is amended to read as
follows:

	2.12.(8).	 	Provider Network Reports
	 
	 	 	The CONTRACTOR shall notify HSD/MAD within five (5) working
days of any unexpected changes to the composition of its provider
network that negatively affect member access or the
CONTRACTOR’S ability to deliver all services included in the
benefit package in a timely manner. Any anticipated material
changes in the CONTRACTOR’S provider network shall be
reported to HSD/MAD in writing when the CONTRACTOR knows of
the anticipated change or within thirty (30) calendar days,
whichever comes first. The notice submitted to HSD/MAD shall
include the following information: nature of the change; information
about how the change affects the delivery of covered services or
access to the services; and the CONTRACTOR’S plan for
maintaining the access and quality of member care.
	 
	 	 	In the event that substantial or material provider network changes
occur, including when it is determined that a provider is otherwise
unable to meet its contractual obligation, the CONTRACTOR shall
be required to submit transition plans to HSD/MAD. The
CONTRACTOR shall provide member demographic information,
date or anticipated date of transition, any special conditions or
barriers to transition, and other related information requested by
HSD/MAD.

25

 

Article 5 (COMPENSATION & PAYMENT REIMBURSEMENT FOR MANAGED CARE) Section 5.6.(4). is amended
to read as follows:

	5.6.(4). 	 	HSD/MAD shall recoup payments made by HSD/MAD pursuant to the time periods governed by
this Agreement for the following:

	 	A.	 	members incorrectly enrolled with more than one CONTRACTOR;
	 
	 	B.	 	members categorized as newborns or X5 except as provided for in Article 2.2.(5).A,
2.13.(5). and 5.6.(2). of this Agreement;
	 
	 	C.	 	members who die prior to the enrollment month for which payment was made; and/or
	 
	 	D.	 	members whom HSD/MAD later determines were not eligible for Medicaid during the enrollment
month for which payment was made.
	 
	 	E.	 	In the event of an error, which causes payment(s) to the CONTRACTOR to be issued by
HSD/MAD, HSD/MAD shall recoup the full amount of the payment. Interest shall accrue at the
statutory rate on any amounts not paid and determined to be due after the thirtieth (30th) day
following the notice. Any process that automates the recoupment procedures will be discussed in
advance by HSD/MAD and the CONTRACTOR and documented in writing, prior to implementation of a new
automated recoupment process. The CONTRACTOR has the right to dispute any recoupment action in
accordance with contractual provision.
	 
	 	F.	 	For individuals who were enrolled with more than one CONTRACTOR, the CONTRACTOR from whom
the capitation payment is recouped shall have the right to recoup incurred expenses from the
CONTRACTOR who retains the capitation payment.

Article 5 (COMPENSATION & PAYMENT REIMBURSEMENT FOR MANAGED CARE) Section 5.6.(6). is added to
read as follows:

	5.6.(6). 	 	If the member is hospitalized at the time of disenrollment from Salud! or upon an
approved switch from one contractor to another, the CONTRACTOR shall be responsible for payment for
all covered inpatient facility and professional services provided within a licensed acute care
facility, or a non-psychiatric specialty unit or

26

 

	 	 	hospitals as designated by the New Mexico Department of Health. The payer at the date of
admission (MCO or FFS) remains responsible for services until the date of discharge. Services
provided within a psychiatric unit of an acute care hospital are the responsibility of the SE and
are excluded under this Amendment.
	 
	 	 	For the purpose of this CONTRACT:

	 	1.	 	When a member is moved from or to a PPS exempt unit within an acute care hospital, the move
is considered a “discharge.”
	 
	 	2.	 	When a member is moved from or to a specialty hospital as designated by DOH or HSD/MAD, the
move is considered a “discharge.”
	 
	 	3.	 	When a member is moved from or to a PPS exempt hospital, the move is considered a
“discharge.”
	 
	 	4.	 	When a member leaves the acute care hospital setting to a home/community setting, the move
is considered a “discharge.”
	 
	 	5.	 	When a member leaves the acute care hospital setting to an institutional setting, the
“discharge” date is based upon approval of the abstract and/or HSD/MAD.

Note: It is not a “discharge” when a member is moved from one acute care facility to another
acute care facility, including out-of-state acute care facilities.

If a member is hospitalized and is disenrolled from managed care/FFS due to a loss in Medicaid
coverage, the MCO or FFS, respectively, is only financially liable for the inpatient
hospitalization and associated professional services until such time that the member/client is
determined to be ineligible for Medicaid.

Article 5 (COMPENSATION & PAYMENT REIMBURSEMENT FOR MANAGED CARE) Section 5.9 the first paragraph
is amended to read as follows:

	5.9	 	The CONTRACTOR shall accept the capitation rate paid each month by the HSD/MAD as payment in
full for all services to be provided pursuant to this Agreement, including all administrative costs
associated therewith. The CONTRACTOR’S income generated under this Agreement includes but is not
limited to Third

27

 

	 	 	Party Recoupments and Interest. HSD/MAD shall determine by annual agreement with the Contractor and
notify the CONTRACTOR in writing, of the minimum percent of the CONTRACTOR’S income to be expended
on the provision of medical health services required under this Agreement. Although HSD/MAD will
calculate the CONTRACTOR’S income and expenditures at the end of the State Fiscal Year to determine
if the minimum percent was expended on the medical health services the final determination of
compliance will be determined by the average ratio of the total income and expenditures over the
term of the Agreement, utilizing reported information and the Department of Insurance Reports.
Administrative costs shall be no higher than the allowable percent, including administrative
expenses for all CONTRACTOR-delegated entities. No later than 180 days after each anniversary of
this Agreement, the CONTRACTOR will calculate its medical costs, as defined herein, from the
inception of the Agreement. To the extent that medical costs incurred from the inception of the
Agreement are less than the specified percentage of income generated under this Agreement for the
same period, the CONTRACTOR will post with the State a performance bond in the amount of that
difference. Within 180 days of the termination of this Agreement, the CONTRACTOR will calculate its
medical costs from the inception of this Agreement to the termination date. To the extent that
medical costs incurred from the inception of the Agreement to the termination date are less than
the composite specified percentage of the income generated under this Agreement for the same
period, the CONTRACTOR will pay such amount to the State no later than 195 days after the
termination of the Agreement. Administrative costs, to be no higher than the specified percentage
including administrative expenses for all CONTRACTOR-delegated entities and other financial
information will be monitored on a regular basis by HSD/MAD. If during any 12 month period ending
on each anniversary date of the Agreement less than 80% of income generated under this agreement is
spent of medical costs, CONTRACTOR shall be subject to potential financial penalties and/or to
sanctions including but not limited to a corrective action plan as defined in Section 8.1 of this
Agreement. Financial information will be monitored on a regular basis by HSD/MAD. Upon mutual
agreement of the parties, this requirement may be renegotiated pursuant to Article 12 due to
revision of governmental or regulatory costs, taxes or fees. HSD/MAD agrees that payments by the
CONTRACTOR to providers through a provider quality incentive program are to be categorized as
medical health expenses or services under this Agreement and are properly included by CONTRACTOR in
meeting the requirement that no less than the specified percentage of revenues are expended on

28

 

medical health services under this Agreement. The CONTRACTOR agrees that any provider quality
incentive program will be submitted to HSD/MAD for approval and will utilize performance measures
designed to provide an incentive to CONTRACTOR’S provider network to improve quality, access, and
satisfaction for Salud! members. The determination of allowable Administrative expenses under this
Agreement shall be consistent with state and CMS requirements. The following are HSD/MAD’s
designated administrative expense functions:

Article 19 (SUBCONTRACTS) Section 19.4 (Subcontracting Requirements) is amended to include
19.4.(10):

	19.4.(10). 	 	The CONTRACTOR will establish and provide for HSD/MAD approval a plan to utilize the New
Mexico State Immunization Information System (SIIS).
	 
	 	 	The goal of SIIS is to improve immunization rates for all New Mexico children through an
innovative public-private partnership. SIIS is working to develop an integrated, statewide
computerized registry to network each child’s full immunization history. This system will ensure
that health care providers have rapid access to complete and up-to-date immunization records.
	 
	 	 	The CONTRACTOR will collaborate with HSD/MAD and the Department of Health (DOH) in the
implementation of the SIIS to ensure the secure, electronic exchange of immunization records to
support the elimination of vaccine preventable diseases.
	 
	 	 	The CONTRACTOR will ensure that all subcontractors comply with the SIIS initiative.

Article 38 (ENTIRE AGREEMENT) is amended to include:

Except for those revisions required by CMS, state or federal requirements, revisions to the
original Agreement shall require an amendment agreed to by both parties. Capitation payments shall
remain in effect as specified in Articles 5.5 (Changes in Capitation Rates), Article 12 (Contract
Modification) and Article 36 (Amendments).

29

 

MOLINA

July 1, 2007 — June 30, 2008

	 	 	 	 	 	 	 
	Rate Cohort	 	Cohort Description	 	Year 11 Rates	 	Composite PMPM
	1	 	TANF / AFDC, CYFD 0 - 2 Months
	 	$**	 	 
	2	 	TANF /AFDC, 2 Months -20 Years
	 	$**	 	 
	3	 	TANE / AFDC 21 - 49 Female
	 	$**	 	 
	4	 	TAND / AFDC 21 - 49 Male
	 	$**	 	 
	5	 	TANF / AFDC 50 +
	 	$**	 	 
	6	 	SSI & Waiver 2 months - 1 Year Male & Female
	 	$**	 	 
	7	 	SSI & Waiver 1 - 20 Years Male & Female
	 	$**	 	 
	8	 	SSI & Waiver 21 - 39 Female
	 	$**	 	 
	9	 	SSI & Waiver 21 - 39 Male
	 	$**	 	 
	10	 	SSI & Waiver 40 +, Aged 65 +
	 	$**	 	 
	11	 	PW, MA15-49
	 	$**	 	 
	12	 	CYFD 2 Months - 20 Years
	 	$**	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 	$  **

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	CONTRACTOR	 	 	 	State of NM HSD Representative
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	BY:

	 	/s/ Ann O. Wehr
	 	 	 	BY:
	 	/s/ C. Ingram	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	TITLE:

	 	CEO
	 	 	 	TITLE:
	 	Director	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	DATE:

	 	6/20/07
	 	 	 	DATE:
	 	7/1/07	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 	 	 	 	 

			
	**	 	Pursuant to New Mexico Administrative Code Section 8.305.11.9, confidential treatment under Exchange Act Rule 24b-2 has
been requested for these rate amounts.

30

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date of execution by the
State Contracts Officer, below.

	 	 	 	 	 	 	 	 	 	 	 
	CONTRACTOR	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:	 	/s/ Ann O. Wehr  	 	 	 	Date: 5/21/07	 	 
	 	 	 	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	STATE OF NEW MEXICO	 	 
	 
	 	 	 	 	 	 
	By:

	 	/s/ Kathryn Fall
	 	 	 	Date: 7/9/07
	 

	 	 	 	 	 	 
	 

	 	Secretary	 	 	 	 
	 

	 	Human Services Department	 	 	 	 
	 
	 	 	 	 	 	 
	Approved as to Form and Legal sufficiency:	 	 
	 
	 	 	 	 	 	 
	By:

	 	/s/ Paul Ritzma
	 	 	 	Date: 6/24/07
	 

	 	 	 	 	 	 
	 

	 	General Counsel	 	 	 	 
	 

	 	Human Services Department	 	 	 	 
	 
	 	 	 	 	 	 
	TAXATION AND REVENUE DEPARTMENT	 	 
	 
	 	 	 	 	 	 
	ID NUMBER: 02-215219-009	 	 
	 
	 	 	 	 	 	 
	By:

	 	/s/ Julie Rico
	 	 	 	Date: 7/12/07
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	DEPARTMENT OF FINANCE AND ADMINISTRATION	 	 
	 
	 	 	 	 	 	 
	By:

	 	/s/ Angie Yardio
	 	 	 	Date: 07/30/07
	 

	 	 	 	 	 	 
	 

	 	State Contracts Officer	 	 	 	 

EFFECTIVE

JUL 1 2007

CONTRACT REVIEW BUREAU

31

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