Court Opinion

ID: 4129121
Source: CourtListenerOpinion
Date Created: 2017-02-18 00:47:37.692481+00
Date Added: 2024-06-11T14:33:25.885913
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* OFFICE OF THE ATTORNEY GENERAL . STATE OF TEXAS

   JOHN     CORNYN

                                               October 4,2002

The Honorable Ron Wilson                                      Opinion No. JC-0559
Chair, Committee on Licensing and
Administrative Procedures                                     Re:    Whether the Texas Department of
Texas House of Representatives                                Insurance is authorized to examine certain
P.O. Box 2910                                                 nonprofit health corporations under Insurance
Austin, Texas 78768-2910                                      Code articles 20A. 17 and 20A. 18C
                                                              (RQ-0534-JC)

Dear Representative     Wilson:

         You ask a number of questions about the authority of the Texas Department of Insurance (the
“Department”) under the Health Maintenance Organization Act, chapter 20A of the Texas Insurance
Code, to examine nonprofit health corporations certified by the Texas State Board of Medical
Examiners.’ Article 20A.17 of the Insurance Code authorizes the Department to examine health
maintenance organizations.      See TEX. INS. CODE ANN. art. 20A.17 (Vernon Supp. 2002). In
connection with the examination of a health maintenance organization, the Department is authorized
to examine records of a nonprofit health corporation, with which the health maintenance
organization has a contract, that are “relevant to its relationship with the health maintenance
organization.” Id. art. 20A. 17(b)( 1). The Department’s authority to examine a nonprofit health
corporation under article 20A. 17 depends only on whether the health maintenance organization has
a contract with the nonprofit health corporation and does not depend on whether the nonprofit health
corporation provides only medical care or is paid on a prospective basis under the contract. The
Department’s authority to examine medical, hospital, and health records is limited to examinations
of health maintenance organizations concerning the quality of health care services. See id. art.
20A. 17(a), (b)(3).

         You also ask about article 20A.18C of the Insurance Code, which regulates health
maintenance organizations’ delegation of regulated functions. Under article 20A. 18C, as enacted
in 1999, the Department’s authority with respect to a delegated network is dependent on the health
maintenance    organization first providing the delegated network with written notice and an
opportunity to respond and then requesting the Department to intervene.              The Department’s
intervention authority is not limited to the issues raised in the health maintenance organization’s
written notice. A nonprofit health corporation may fall within the statutory definition of a “delegated

         ‘See Letter fromHonorable Ron Wilson, Chair, Committee on Licensing and Administrative Procedures, Texas
House of Representatives,  to Honorable John Cornyn, Texas Attorney General (Apr. 3, 2002) (on file with Opinion
Committee) [hereinafter Request Letter].
The Honorable Ron Wilson       - Page 2         (JC-0559)

network” and may be subject to examination by the Department as a delegated network if the health
maintenance organization requests the Department to intervene. This examination could include the
nonprofit health corporation’s financial condition.

I. Background

         We begin with a brief review of several key concepts. You ask about the Department’s
authority to examine the records of “physician organizations,” by which you mean nonprofit health
corporations certified by the Texas State Board of Medical Examiners.         The Board of Medical
Examiners regulates physicians and the practice of medicine under the Medical Practice Act, which
is now codified in the Texas Occupations Code. See TEX. OCC. CODE ANN. $9 152.001 (board’s
“power to regulate the practice of medicine”); 153.001(3) (board’s authority to adopt rules to
“regulate the practice of medicine in this state”); 155.001 (license to practice medicine) (Vernon
2002). The Medical Practice Act defines “practicing medicine” as

                the diagnosis, treatment, or offer to treat a mental or physical disease
                or disorder or a physical deformity or injury by any system or method,
                or the attempt to effect cures of those conditions, by a person who:

                        (A) publicly professes to be a physician or surgeon; or

                         (B) directly or indirectly charges money or other compensa-
                tion for those services.

Id. 0 151.002(a)(13).

         The Medical Practice Act also mandates in section 162 .OO1 of the Occupations Code that the
Board of Medical Examiners certify nonprofit health corporations that meet certain requirements.
See id. 8 162.001. As Attorney General Opinion JC-0304 explains, the purpose of this provision is
to create a limited exception to the general prohibition against the corporate practice of medicine.
See Tex. Att’y Gen. Op. No. JC-0304 (2000) at 4. While your query refers to these entities as
“physician organizations,” the Department’s rules refer to them as “approved nonprofit health
corporations” or “ANTICS.” See 28 TEX. ADMIN. CODE 4 11.2(a)(6) (2002). We use the term
“nonprofit health corporation,” which is used in both section 162.00 1 of the Occupations Code and
the Health Maintenance Organization Act. See TEX. OCC. CODE ANN. 8 162.001 (Vernon 2002);
TEX. INS. CODE ANN. art. 20A.O2(r)(2) (Vernon Supp. 2002).

         Section 162.001 of the Occupations Code provides for two types of nonprofit         health
corporations that the Board of Medical Examiners must certify. The first type:

                    (1) is a nonprofit corporation      under   the Texas    Non-Profit
                Corporation Act organized to:
The Honorable Ron Wilson        - Page 3          (JC-0559)

                         (A) conduct scientific research and research projects in the
                 public interest in the field of medical science, medical economics,
                 public health, sociology, or a related area;

                         (B) support medical    education     in medical schools through
                 grants and scholarships;

                           (C) improve and develop the capabilities of individuals   and
                 institutions studying, teaching, and practicing medicine;

                          (D) deliver health care to the public; or

                          (E) instruct the general public in medical science, public
                 health, and hygiene and provide related instruction useful to
                 individuals and beneficial to the community;

                     (2) is organized and incorporated      solely by persons licensed by
                 the board; and

                      (3) has as its directors and trustees persons who are:

                         (A) licensed by the board; and

                          (B) actively engaged in the practice of medicine.

TEX. Oct. CODE ANN. 8 162.001(b) (Vernon 2002). The second type is

                 a health organization to contract with or employ physicians licensed
                 by the board if the organization:

                     (1) is a nonprofit corporation under the Texas Non-Profit
                 Corporation Act. . . and Section 50 1(c)(3), Internal Revenue Code of
                 1986 (26 U.S.C. Sec. 501(c)(3)); and

                      (2) is organized and operated as:

                          (A) amigrant, community, or homeless health center under the
                 authority of and in compliance with 42 U.S.C. Section 254b or 254~;
                 or

                        (B) a federally qualified health center under 42 U.S.C. Section
                 1396d(Z)(2)(B).

Id. tj 162.001 (c).
The Honorable Ron Wilson         - Page 4           (JC-0559)

        The Board of Medical Examiners may refuse to certify or may revoke a certification “[o]n
a determination that a health organization is established, organized, or operated in violation of or
with the intent to violate this subtitle.” Id. 8 162.003. It may also discipline individual physicians
involved in a nonprofit health corporation with respect to the practice of medicine. However, the
Board of Medical Examiners lacks any other authority with respect to these entities.2

          Your questions focus on the examination of nonprofit health corporations under the Health
Maintenance Organization Act, chapter 20A of the Insurance Code (the “Act” or “chapter 20A”).
As a general matter, the Act provides for the regulation of health maintenance organizations. For
purposes of the Act, “health maintenance organization” is defined as “any person who arranges for
or provides a health care plan, a limited health care service plan, or a single health care service plan
to enrollees on a prepaid basis.” TEX.INS.CODEANN. art. 20A.O2(n) (Vernon Supp. 2002); see also
id. art. 20A.06 (powers ofhealthmaintenance     organization). Health maintenance organizations must
obtain a certificate of authority from the Department and are subject to regulation by the Department.
See, e.g., id. arts. 20A.03-.06,20A.09.

         The Act is not applicable to physicians “engaged in the delivery of care that is within the
definition of medical care.” Id. art. 20A.26@( l)(A). Under the Act, the term “physician” is defined
to include nonprofit health corporations certified by the Board of Medical Examiners under the
Medical Practice Act. Article 20A.02 defines the term “physician” for purposes of the Act as:

                      (1) an individual licensed to practice medicine in this state;

                     (2) a professional   association  organized under the Texas
                 Professional Association Act (Article 1528f, Vernon’s Texas Civil
                 Statutes) or a nonproJit health corporation cert$ed under Section
                 5.01, Medical Practice Act (Article 4495b, Vernon ‘s Texas Civil
                 Statutes) [now Occupations Code section 162.001];

                     (3) a medical school or medical and dental unit, as described by
                 Section 61.003,61.501, or 74.601, Education Code, that employs or
                 contracts with physicians to teach or provide medical services or
                 employs physicians and contracts with physicians in a practice plan;
                 or

                     (4) another person wholly owned by physicians.

Id. art. 20A.O2(r) (emphasis added). Under the Act, “medical care”means “furnishing those services
defined as practicing medicine under [the] Medical Practice Act.” Id. art. 2OA.O2(p); see also TEX.
Oct. CODE ANN. 8 15 l.O02(a)( 13) (V emon 2002) (Medical Practice Act provision defining
“practicing medicine”).

         *See Brief fi-om Michele Shackelford, General Counsel, Texas State Board of Medical Examiners, to Susan
Denmon Gusky, Chair, Opinion Committee, Office of Attorney General, at 2 (June 4, 2002) (on file with Opinion
Committee) D
The Honorable Ron Wilson           - Page 5        (JC-0559)

       The Act defines the terms “provider” and “health care” to exclude physicians              and medical
care. A “provider” is:

                     (1) any person other than aphysician, including a licensed doctor
                of chiropractic, registered nurse, pharmacist, optometrist, registered
                optician, acupuncturist, pharmacy, hospital, or other institution or
                organization or person that is licensed or otherwise authorized to
                provide a health care service in this state;

                    (2) a person who is wholly owned or controlled by a provider or
                by a group of providers who are licensed to provide the same health
                care service; or

                    (3) a person who is wholly owned or controlled by one or more
                hospitals and physicians, including a physician-hospital organization.

TEX. INS. CODE ANN. art. 20A.O2(t) (Vernon Supp. 2002) (emphasis added); see also id. art.
20A.O2(q) (defining “person”). “Health care” means “prevention, maintenance, rehabilitation,
pharmaceutical, and chiropractic services provided by qualified persons other than medical care.”
Id. art. 20A.O2(k) (emphasis added) (text of subsection (k) as amended by Act of June 1,1997,75th
Leg., R.S., ch. 1026, 8 3, 1997 Tex. Gen. Laws 3804,3807). On the other hand, the term “[hlealth
care services” includes medical services:

                any services,       including the furnishing       to any individual       of
                pharmaceutical       services, medical, chiropractic, or dental care,      or
                hospitalization    or incident to the furnishing of such services, care,   or
                hospitalization,    as well as the furnishing to any person of any and     all
                other services     for the purpose of preventing, alleviating, curing      or
                healing human      illness or injury a limited health care service plan,   or
                a single health    care service plan.

Id. art. 20A.O2(m) (emphasis added).

         You ask about nonprofit health corporations that provide medical as opposed to other kinds
of health care. To the extent nonprofit health corporations are engaged in the delivery of medical
care, the Health Maintenance Organization Act does not apply to them, see id. art. 20A.26@( l)(A),
and they are not required to obtain a certificate of authority under the Act, see id. art. 20A.26@(2)
(requiring physician “that employs or enters into a contractual arrangement with a provider or group
of providers to furnish basic, limited, or single health care services” to obtain a certificate of
authority, with certain exceptions). We also note that, under article 21.52F of the Insurance Code,
a nonprofit health corporation may arrange for or provide a “health care” plan to enrollees on a
prepaid basis only if the corporation obtains and maintains a special certificate of authority issued
by the Department under that article. See id. art. 2 1.52F, § 2(a). A nonprofit health corporation may,
however, “arrange for or provide health care services on a risk-sharing or capitated risk arrangement”
The Honorable   Ron Wilson    - Page 6        (JC-0559)

on behalf of a health maintenance organization without obtaining a certificate of authority under
either article 21.52F or the Act. See id. art. 21.52F, 8 2(c). A Department rule provides that a
nonprofit health corporation “that contracts to arrange for or provide only medical care” as defined
in the Act is not required to obtain a certificate of authority under article 21.52F. See 28 TEX.
ADMIN. CODE 8 11.1702(d) (2002); see also id. 6 11.1604 (imposing certain requirements             on
primary health maintenance organization that “enters into a contract with an ANHC in which the
ANHC agrees to arrange for or provide health care services, other than medical care or services
ancillary to the practice of medicine”) (emphasis added). Thus the nonprofit health corporations
about which you inquire are not required to obtain a certificate of authority under either the Act or
article 21.52F. They are, however, “physicians” and are subject to some regulation under the Act.
See TEX. INS. CODE ANN. art. 20A.O2(r) (Vernon Supp. 2002) (defining “physician”).

II. The Department’s     Authority under Article 2OA.17

        With these concepts in mind, we turn to the authority of the Department to examine the
records of a nonprofit health corporation under article 20A. 17 of the Act. You ask:

                         Does the Commissioner of Insurance have authority under
                Articles 1.15, 20A. 17 or 20A. 18C of the Texas Insurance Code to
                conduct a regulatory examination of a physician organization that,
                under a contract with a health maintenance organization, provides
                only medical services that the organization’s       physicians   are
                professionally licensed to provide in exchange for a predetermined
                payment on a prospective basis?

Request Letter, supra note 1, at 5. As we will explain below, while article 1.15 does not apply to
physicians or nonprofit health corporations, article 20A. 17 authorizes the Department in connection
with the examination a health maintenance organization to examine the records of a physician or
nonprofit health corporation with which the health maintenance organization has a contract. We
examine the Department’s authority under article 20A. 18C in conjunction with your other questions
about that provision. See Part III infra.

         Article 1.15 does not apply to physicians or nonprofit health corporations certified by the
Board of Medical Examiners and does not authorize the Department to examine them. Article 1.15
of the Insurance Code speaks in terms of the Department’s examination of carriers. The Department
may apply article 1.15 to health maintenance organizations. See TEX.INS.CODEANN. art. 20A. 17(c)
(Vernon Supp. 2002) (“Articles l.O4A, 1.15,l. 16, and 1.19, as amended, of the Insurance Code shall
be construed to apply to health maintenance organizations, except to the extent that the
commissioner determines that the nature of the examination of a health maintenance organization
renders such clearly inappropriate.“).

        By contrast, article 20A. 17, a provision of the Health Maintenance Organization Act,
expressly authorizes the Department to examine the records of a physician or provider with whom
a health maintenance organization has a contract in connection with the examination of the health
The Honorable   Ron Wilson     - Page 7         (JC-0559)

maintenance organization. Article 20A. 17 requires the Commissioner of Insurance to examine “the
quality of health care services” and “the affairs” of a health maintenance organization “not less
frequently than once every three years.” Id. art. 20A.l7(a) (“The commissioner may make an
examination concerning the quality of health care services and of the affairs of any applicant for a
certificate of authority or any health maintenance organization as often as the commissioner deems
necessary, but not less frequently than once every three years.“). Subsection (b)( 1) of article 20A. 17
expressly provides that this examination may include an examination of the books and records of a
physician:

                    (b)(l) Every health maintenance organization shall make its
                books and records relating to its operation available for such
                examinations and in every way facilitate the examinations.  Every
                physician     and provider   with whom a health maintenance
                organization has a contract, agreement, or other arrangement need
                only make available for examination that portion of its books and
                records relevant to its relationship with the health maintenance
                organization.

Id. art. 20A.l7(b)(l)  (emphasis added).   Under subsection (b)(2), the health maintenance
organization must provide the Department with copies of its contracts with physicians:

                     (2) A copy of any contract, agreement, or other arrangement
                between a health maintenance organization and a physician or
                provider shall be provided to the commissioner by the health
                maintenance organization on the request of the commissioner.     Such
                documentation provided to the commissioner under this subsection
                shall be deemed confidential and not subject to the open records law,
                Chapter 552, Government Code.

Id. art. 20A. 17(b)(2). Subsection (b)(5) permits the Department to obtain any other relevant records
directly from physicians:

                    (5) For the purpose of examinations, the commissioner may
                administer oaths to and examine the officers and agents of the health
                maintenance organization and the principals of such physicians and
                providers concerning their business.

Id. art. 20A.l7(b)(5) (emphasis added). Again, for purposes of the Act, the term “physician”
includes both individual physicians and nonprofit health corporations certified by the Board of
Medical Examiners. See id. art. 2OA.O2(r). Thus, the authority to examine physician records in
article 20A. 17(b)(l), (2), (5) includes the authority to examine the records of a nonprofit health
corporation.
The Honorable Ron Wilson       - Page 8         (JC-0559)

         As noted above, the Department is specifically authorized under article 20A. 17 to examine
a health maintenance organization “concerning the quality of health care services” as well as its
“affairs.” Id. art. 20A. 17(a). Subsection (b)(3) limits access to medical information about specific
enrollees “as is necessary for an ongoing quality of health assurance program” and provides for the
confidentiality of such information:

                    (3) Medical, hospital, and health records of enrollees and records
                of physicians and providers providing service under independent
                contract with a health maintenance organization shall only be subject
                to such examination as is necessary for an ongoing quality of health
                assurance program concerning health care procedures and outcome in
                accordance with an approved plan as provided for in this Act. Said
                plan shall provide for adequate protection of confidentiality        of
                medical information and shall only be disclosed in accordance with
                applicable law and this Act and shall only be subject to subpoena
                upon a showing of good cause.

Id. art. 20A. 17(b)(3). This provision limits the Department’s authority to examine medical, hospital
and health records to examinations of health maintenance organizations concerning the quality of
health care services. This limitation applies to medical, hospital, and health records in the possession
of health maintenance        organizations,  providers, and physicians, and therefore limits the
Department’s authority to examine such records in the possession of physicians.             However, as
explained below, subsection (b)(3) does not limit the Department’s authority under subsections
(b)(l), (2) and (5) of article 20A. 17 to examine other physician records.

         It has been suggested that subsection (b)(3) limits the authority of the Department to examine
the records of physicians under article 20A.17 to medical records and only for the purpose of
examining the quality of care. See Request Letter, supra note 1, at 3. We disagree. Subsections
(b)(l)-(2) Provide that the Department may examine the “contract, agreement, or other arrangement”
between a physician and the health maintenance organization and a physician’s “books and records
relevant to its relationship with the health maintenance organization.” TEX. INS. CODE ANN. art.
20A. 17(b)(1)-(2) (V emon Supp. 2002). Furthermore, subsection (b)(5) authorizes the Department
to examine the principals of physicians “concerning their business.” Id. art. 20A. 17(b)(5) (emphasis
added). These provisions clearly authorize the Department to examine physician records other than
medical, hospital, and health records - records, such as contracts and books, that are unrelated to
quality of patient care.

         The legislative history of article 20A. 17 supports our conclusion that subsection (b)(3) does
not preclude the Department from examining physician records other than medical, hospital, and
health records.     As enacted in 1975, article 20A. 17 vested the authority to examine health
maintenance organizations’ “affairs” in the Department and their “quality of health care services”
in the State Board of Health. See Act of May 2,1975,64th Leg., R.S., ch. 214,§ 17,1975 Tex. Gen.
Laws 5 14, 523-24 (enacting Texas Insurance Code article 20A. 17(a), (b)). Although the Board of
Health was authorized to examine providers as well as health maintenance organizations, neither
The Honorable Ron Wilson      - Page 9         (JC-0559)

entity had direct authority to examine physicians. See id. A physician was generally required to
make available “that portion of its books and records relevant to its relationship with the health
maintenance organization” for examination by either entity, id. (enacting Texas Insurance Code
article 20A. 17(c)( l)), while “[mledical, hospital, and health records of enrollees” were subject to
examination only as “necessary for an ongoing quality of health assurance program concerning
health care procedures and outcome,” id. (enacting Texas Insurance Code article 20A. 17(c)(2)).
Both the Department and the Board were authorized to examine the principals of physicians
“concerning their business,” id. (enacting Texas Insurance Code article 20A. 17(c)).

        In 1989, the legislature amended the section describing the authority of the Board of Health,
deleting certain language, as follows:

                    (b) The board may make an examination concerning the quality
                of health care services of any health maintenance organization [and

               -1                    as often as it deems it necess
                frequently than once every three years.

Act ofMay28,1989,71st     Leg., R.S., ch. 284,§ 2,1989 Tex. Gen. Laws 1238,1239. The legislature
also amended a section describing the general examination authority ofboth the Board of Health and
the Department:

                     (c)( 1) Every health maintenance organization shall make its books
               and records relating to its operation available for such examinations.
               . . . Every physician and provider with whom a health maintenance
               organization has a contract, agreement, or other arrangement [SO
               exam&~+] need only make available for examination that portion of
               its books and records relevant to its relationship with the health
               maintenance organization.

Id. 0 3, 1989 Tex. Gen. Laws at 1239. These amendments took away the Board of Health’s direct
authority to examine providers and established that both the Department’s and the Board of Health’s
authority to examine physician and provider records extended only to those physicians and providers
“with whom a health maintenance organization has a contract, agreement, or other arrangement.”
See id.

         In 1997, the legislature transferred the authority to examine quality of health care services
from the Board of Health to the Department. See Act of June 1,1997,75th Leg., R.S., ch. 1026, $4
2,17,1997 Tex. Gen. Laws 3804,3805-06,3823-24            (enacting Senate Bill 385). The same bill also
renumbered the article’s subsections and added two new subsections. It added subsection (b)(2),
which requires a health maintenance organization to provide physician and provider contracts to the
Department and makes those records confidential under the Public Information Act. It also added
subsection (b)(4), which authorizes the Department to “examine and use the records of a health
maintenance organization, including records of a quality of care assurance program and records of
The Honorable Ron Wilson      - Page 10        (JC-0559)

a medical peer review committee . . . as necessary to carry out the purposes of this Act, including an
enforcement action under Section 20 of this Act,” and provides that “[tlhat information is
confidential and privileged and is not subject to the [Public Inforrnation Act], or to subpoena
except as necessary for the commissioner to enforce this Act.” Id. 5 17(4), 1997 Tex. Gen. Laws
at 3823-24.

        The 1997 amendments transferred the Board of Health’s examination authority to the
Department without changing that authority.      Furthermore, the amendments did not limit the
Department’s prior authority to examine the affairs of a health maintenance organization and to
examine the records of a physician relevant to his or her relationship with the health maintenance
organization in connection with the examination of a health maintenance organization. See SENATE
RESEARCH CTR.,BILLANALYSIS,Tex. S.B. 385,75th Leg., R.S. (1997) (“During the 74th Interim,
the Senate Interim Committee on Managed Care and Consumer Protections was charged with
reviewing Texas statutes and agency regulations to ensure the availability and effectiveness of
important consumer safeguards. This legislation establishes the transfer of quality of care oversight
functions from the Texas Department of Health. . . to the Texas Department of Insurance.“). Thus,
the Department’s authority to examine physician records under article 20A. 17 is not limited to
medical, hospital, and health records or to “HMO quality of care concerns.” Request Letter, supra
note 1, at 3.

         You ask in particular about the Department’s authority to examine “a physician organization
that, under a contract with a health maintenance organization, provides only medical services that
the organization’s physicians are professionally licensed to provide in exchange for a predetermined
payment on a prospective basis.” Id. at 5. You also assert that the Department’s authority under
article 20A. 17 does not “include authority to examine into the processing, adjudication and payment
of provider claims for HMO-covered services provided to HMO members.” Id. at 3.

         Under article 20A.l7(b)(l), the Department’s authority to examine a physician (including
a nonprofit health corporation) does not depend on whether the physician provides only medical
services or is paid on a prospective basis. Rather, the scope of the Department’s examination
authority under article 20A. 17(b)( 1) depends upon the physician or nonprofit health corporation’s
relationship with the health maintenance organization.        The Department’s authority extends to
“[elvery physician . . .  with whom   a health maintenance  organization has a contract, agreement, or
other arrangement” and is limited in scope to “that portion of [the physician’s] books and records
relevant to [the physician’s] relationship with the health maintenance organization.” TEX.INS.CODE
ANN. art. 20A. 17(b)( 1) (Vernon Supp. 2002). This authority would extend to a physician’s records
relating to “the processing, adjudication and payment of provider claims for HMO-covered services
provided to HMO members,” Request Letter, supra note 1, at 3, to the extent those records are
relevant to the physician’s relationship with the health maintenance organization.

         The Department’s authority to examine the records of physicians        and nonprofit health
corporations under article 20A. 17(b)( 1) is not limited by article 20A.26.     That article, entitled
The Honorable Ron Wilson      - Page 11        (JC-0559)

“StatutoryConstruction  in Relationship to Other Laws,” provides a limited exemption for physicians
and other providers in subsection (f):

                   (1) This Act shall not be applicable to:

                       (A) anyphysician, so long as thatphysician is engaged in the
               delivery of care that is within the definition of medical care; or

                       (B) any provider that is engaged in the delivery of health care
               services other than medical care as part of a health maintenance
               organization delivery network.

TEX. INS.CODE ANN. art. 20A.26@(1) (V emon Supp. 2002) (emphasis added); see also id. art.
20A.29 (Vernon 198 1) (“This Act shall not be construed to . . . (b) authorize any person to regulate,
interfere, or intervene in any manner in the practice of medicine or any healing art.“).

         Other provisions in subsection (f) clarify when a physician must obtain a certificate of
authority under the Act and permit physicians and providers to enter into various types of contractual
arrangements. For example, subsection (f)(2) provides:

                   (2) Except as provided by Section 6(a)(3) of this Act or
               Subdivision (5) of this subsection, any physician or provider that
               employs or enters into a contractual arrangement with a provider or
               group of providers to furnish basic, limited, or single health care
               services as defined in Section 2 of this Act is subject to the provisions
               of this Act and shall be required to obtain a certificate of authority
               from the commissioner.

Id. art. 20A.26@(2) (V emon Supp. 2002). Section 6 of the Act, article 20A.06, describes various
powers of health maintenance organizations, including in (a)(3) “the furnishing of or arranging for
medical care services” throughvarious types of arrangements. See id. art. 20A.O6(a)(3). Subdivision
(5) of subsection (f) provides that

               [t]his Act and the Insurance Code may not be construed to prohibit a
               physician or provider who is participating in a health maintenance
               organization delivery network, whether contracting with a health
               maintenance    organization under Section 6(a)(3) of this Act or
               subcontracting with a physician or provider in the health maintenance
               organization delivery network, from entering into a contractual
               arrangement within a health maintenance organization delivery
               network described under Subdivisions (6)-(g) of this subsection.
The Honorable Ron Wilson             - Page 12            (JC-0559)

Id. art. 20A.26(f)(5).    Subsections (f)(6)-(9) in turn permit various types of arrangements.3
Subsection (f)(4) exempts physicians and providers from “insurance laws, including the group
hospital service corporation law” (with certain exceptions) and is not relevant to the status of
physicians and providers under chapter 2OA, which regulates health maintenance organizations
rather than insurers. See id. art. 20A.26@(4); see also id. art. 20A.26(a) (Vernon 198 1) (exempting
health maintenance organizations from “the insurance law and provisions of the group hospital
service corporation laws”).

        Article 2OA.26(f) does not exempt physicians’ (including nonprofit health corporations’)
records from examination under article 20A. 17(b)( 1). Articles 20A. 17 and 20A.26(f) are part of the
same Act, and we must construe them to give effect to each. See TEX. GOV’T CODE ANN. 8
3 11.02 l(2) (Vernon 1998) (Code Construction Act presumption that legislature intends entire statute
to be effective).     Article 20A. 17(b)( 1) provides for the examination of health maintenance
organizations and authorizes the Department to examine the records of a physician that contracts
with a health maintenance organization, but limits the scope of that authority to “that portion of [the
physician’s] books and records relevant to [the physician’s] relationship with the health maintenance
organization.” TEX. INS. CODE ANN. art. 20A.l7(b)(l) (Vernon Supp. 2002). If article 20A.26(f)
exempted physicians’ records from examination under article 20A. 17(b), then the language about
physician records in subsection (b)(l), and subsections (b)(2) and (5)’ would be rendered
meaningless. We may not construe article 20A.26(f) so broadly. See Chevron Corp. v. Redmon, 745
S.W.2d 314, 316 (Tex. 1987) (Texas Supreme Court “will give effect to all the words of a statute
and not treat any statutory language as surplusage if possible”) (citing Perkins v. State, 367 S.W.2d
140 (Tex. 1963)); R.R. Comm’n v. Olin Corp., 690 S.W.2d 628,631 (Tex. App.-Austin 1985, writ
ref d n.r.e.) (“[Elvery word . . . of a statute is presumed to be intentionally used with meaning and
purpose.“); see also TEX. GOV’T CODE ANN. 4 311.021(2) (Vernon 1998) (in enacting a statute, it
is presumed that “the entire statute is intended to be effective”) (Code Construction Act).

         Furthermore, the language of article 20A.26(f)(l)(A)        does not require such a broad
construction.    Article 2OA.26(f)( l)(A) p rovides that the Act does not apply to physicians (which
includes nonprofit health corporations) to the extent they are “engaged in the delivery of care that
is within the definition of medical care.” TEX. INS. CODE ANN. art. 20A.26(f)(l)(A) (Vernon Supp.
2002). Because the term “medical care” means “the diagnosis, treatment, or offer to treat a mental

          3SeeTEX. INS. CODE ANN. art. 20A.26(f)(6) (“A physician may contract to provide medical care or arrange to
provide medical care through subcontracts with other physicians. A physician may contract to provide through other
providers any services that are ancillary to the practice of medicine, other than hospital or other institutional or inpatient
provider services.“), (7) (“A provider may contract to provide, or arrange to provide through subcontracts with similarly
licensed providers, any health care services that those providers are licensed to provide, other than medical care.“), (8)
(“A provider may contract to provide, or arrange to provide through subcontracts with other providers, a health care
service that the provider is not licensed to provide, other than medical care, if the contracted or subcontracted services
constitute less than 15 percent of the total amount of services to be provided by that provider or arranged to be provided
for by that provider.“), (9) (“A contract or subcontract authorized under Subdivision (6), (7), or (8) of this subsection
may provide for compensation based on a fee-for-service arrangement, a risk-sharing arrangement, or a capitated risk
arrangement under which a fixed predetermined payment is made in exchange for the provision of, or the arrangement
to provide and the guaranty of the provision of’ a defined set of covered services to the covered persons for a specified
period, regardless of the amount of services actually provided.“).
The Honorable Ron Wilson      - Page 13         (JC-0559)

or physical disease or disorder or a physical deformity or injury by any system or method, or the
attempt to effect cures of those conditions,” TEX.OCC. CODEANN. 8 15 l.O02(a)( 13) (Vernon 2002);
TEX. INS. CODE ANN. art. 20A.O2(p) (Vernon Supp. 2002) (defining “medical care” in reference to
the Medical Practice Act), article 20A.26@( l)(A) exempts physicians, to the extent they are engaged
in such activities, from regulation under the Act. See TEX.INS.CODEANN. art.20A.26(f)( l)(A); see
also id. art. 20A.29 (Vernon 198 1) (“This Act shall not be construed to . . . (b) authorize any person
to regulate, interfere, or intervene in any manner in the practice of medicine or any healing art.“)
(emphasis added). Article 20A.26(f)( l)(A) thereby recognizes that individual physicians’ delivery
of medical care is regulated by the Board of Medical Examiners. However, other activities of
physicians are not exempt from regulation under the Act by article 20A.26(f)(l)(A),             nor are
physician records exempt from examination by that provision. Article 20A.26@( l)(A), in providing
that the Act does not apply to physicians, does not affect the authority of the Department to examine
a health maintenance organization and does not limit the Department’s express authority under
article 20A. 17(b)( 1) to examine a physician’s records relevant to the physician’s relationship with
a health maintenance organization.

         Nor do other provisions of article 20A.26(f) affect the Department’s authority to examine a
physician’s records. Article 20A.26@(2) establishes when a physician must obtain a certificate of
authority under the Act, but does not provide an affirmative exemption from regulation. Other
provisions of subsection (I) permit physicians to enter into certain kinds of contracts, but do not
necessarily exempt physicians from regulation under the Act. Subsection (f)(4) exempts physicians
from “insurance laws” and is not relevant to the examination of physicians under chapter 20A.
These provisions do not affect the authority of the Department to examine a physician’s records
under article 20A. 17.

         Finally, article 21.52F does not affect the extent to which the Department may regulate under
the Act nonprofit health corporations that provide only medical care. Article 21.52F requires a
nonprofit health corporation to obtain a special certificate of authority if it “arrange[s] for or
provide[s] a health care plan to enrollees on a prepaid basis.” TEX. INS. CODE ANN. art. 21.52F, 5
2(a); see also id. art. 2 1.52F, 9 2(c) (nonprofit health corporation may “arrange for or provide health
care services on a risk-sharing or capitated risk arrangement” on behalf of a health maintenance
organization without obtaining a certificate of authority under the Act or article 2 1.52F). Article
21.52F expressly provides that it does not “apply” to “an activity exempt from regulation under”
article 20A.26(& id. art. 21.52F, 8 2(b)(3) (emphasis added), and that it “shall not be construed to
alter the exceptions set out in” article 20A.26(f), id. art. 21.52F, 5 2(d) (emphasis added). By its
terms, article 21.52F does not broaden the scope of the article 20A.26(f) with respect to nonprofit
health corporations that provide only medical care. Accordingly, article 21.52F does not affect
the authority of the Department to examine a nonprofit health corporation’s records under
article 20A. 17.

III. The Department’s     Authority under Article 20A.lSC

         Next, we address the Department’s authority with respect to “delegated networks” under
article 20A. 18C of the Act. In 2001, the Legislature amended article 20A. 18C and specified that
The Honorable Ron Wilson       - Page 14        (JC-0559)

the changes in the law would apply only to a contract entered into or renewed on or after
January 1,2002: “A contract entered into before January 1,2002, is governed by the law in effect
immediately before the effective date of this Act, and that law is continued in effect for that
purpose.” Act ofMay 17,2001,77thLeg.,         R.S., ch. 550,§ 7,200l Tex. Gen. Laws 1041, 1050. As
you inform us that the contract at issue dates from before January 1,2002, and has not been renewed,
we address article 20A. 18C as it was first enacted in 1999, prior to its amendment in 2001. See Act
of May 18,1999,76th Leg., R.S., ch. 621,1999 Tex. Gen. Laws 3 163. All references in this opinion
to article 20A. 18C are references to the 1999 enactment.

        Article 20A. 18C regulates health maintenance organizations’ delegation of regulated
functions to delegated networks. See id. Ej2, at 3 164-68. A “delegation agreement” is an agreement
by which a health maintenance organization “assigns the responsibility for a function regulated under
this Act.” Id. 8 1, at 3 164 (enacting Texas Insurance Code article 20A.02 (dd)). A “delegated
network” is

               an entity, other than a health maintenance organization authorized to
               do business under this Act or an insurer authorized to do business
               under Chapter 3, Insurance Code, which: (i) by itself, or through one
               or more entities, undertakes to arrange for or to provide medical care
               to an enrollee in exchange for a predetermined          payment on a
               prospective    basis; and (ii) performs on behalf of the health
               maintenance organization, any function regulated by this Act.

Id. (enacting Texas Insurance Code article 20A.02 (ee)); see also id. (excluding from “‘delegated
network’. . . an individual physician or a group of employed physicians practicing medicine under
one federal tax identification number and whose total claims paid to providers not employed by the
group is less than 20 percent of the total collected revenue of the group calculated on a calendar year
basis.“). A health maintenance organization that enters into a delegation agreement must execute
a written agreement with the delegated network and must file the agreement with the Department.
See id. 8 2 (enacting Texas Insurance Code article 20A.l8C(a)).         The agreement must contain a
monitoring plan pursuant to which the health maintenance organization monitors the delegated
network’s performance of delegated functions. See id. (enacting Texas Insurance Code article
20A. 1SC(a)( 1)).

        Under article 20A. 18C, a health maintenance organization must notify the Department about
and request the Department’s intervention with respect to problems in the delegated network’s
performance of delegated functions under certain circumstances. You ask two questions about the
Department’s authority with respect to delegated networks under article 20A. 18C:

                        Is an HMO required to provide notice to a delegated network
               identifying specific deficiencies under a monitoring plan (“Notice of
               Deficiencies”) and an opportunity to respond and cure the specific
               deficiencies identified by the HMO as a condition precedent to the
               Department’s intervention authority?
The Honorable Ron Wilson       - Page 15        (JC-0559)

                        Does the Department have authority to examine delegated
                networks with respect to matters that have either not been identified
                in the Notice of Deficiencies, or have been identified but cured by the
                delegated network, following an HMO’s request for intervention by
                the Department?

Request Letter, supra note 1, at 6. As we explain below, the Department’s authority under article
20A. 18C with respect to a delegated network depends on the health maintenance organization first
providing the delegated network with written notice and an opportunity to respond and then
requesting the Department to intervene. The Department’s intervention authority, once it has been
invoked, is not limited to the issues raised in the health maintenance organization’s written notice.

         First, the Department’s authority to intervene under article 20A. 18C is triggered by a health
maintenance organization’s request for intervention. Under article 20A. 18C, a health maintenance
organization requests intervention after adhering to certain procedural steps. Specifically, a health
maintenance organization that receives information through the monitoring plan that indicates that
the delegated network “is not operating in accordance with its written agreement” or “is operating
in a condition that renders the continuance of its business hazardous to the enrollees” is required to
notify the delegated network in writing. See Act of May 18,1999,76th Leg., R.S., ch. 621,§ 2,1999
Tex. Gen. Laws 3 163,3 166 (enacting Texas Insurance Code article 20A. 18C(d)). The written notice
must notify the delegated network of the findings and request a written explanation of “the delegated
network’s noncompliance with the written agreement” or “the existence of the condition that renders
the continuance of the delegated network’s business hazardous to the enrollees.” Id. The delegated
network must respond to the written request for an explanation in writing “not later than the 30th day
after the date the request is received.” Id. (enacting Texas Insurance Code article 20A. 18C(e)). The
health maintenance organization “shall cooperate” with the delegated network to correct the
delegated network’s failure “to comply with the regulatory requirements of the department” relating
to delegated functions or matters “necessary for the health maintenance organization to ensure
compliance with statutory or regulatory requirements.” Id. at 3 166-67 (enacting Texas Insurance
Code article 20A. 18C(f)).

          The health maintenance organization must notify the Department and request intervention
if the health maintenance organization does not receive a timely response from the delegated network
or if the health maintenance organization and the delegated network are unable to reach an agreement
as to whether the delegated network is complying with the written agreement or has corrected any
problem regarding a practice that is hazardous to an enrollee of the health maintenance organization.
See id. at 3 167 (enacting Texas Insurance Code article 20A. 18C(g)). After it receives a request for
intervention, the Department may take any of a number of actions. See id. (enacting Texas Insurance
Code article 20A. 18C(h)). This authority clearly depends on the Department’s receipt of a request
for intervention.    See id. (“On receipt of a request for intervention under Subsection (g) of this
section, the department may. . . . “) (emphasis added).

         With respect to your second question, once the Department has received a request for
intervention and is authorized to intervene, its authority is not limited to the issues raised in the
The Honorable    Ron Wilson    - Page 16          (JC-0559)

health maintenance organization’s request for a written explanation.             On receipt of a request for
intervention, the Department may:

                /    (1) request financial and operational documents          from the
                 delegated network to further investigate deficiencies indicated by the
                monitoring plan;

                     (2) conduct an on-site audit of the delegated network zj”the
                department determines that the delegated network is not complying
                with the monitoring standards required under Subsection (a)(l) of
                this section; or

                     (3) notwithstanding any other provisions, upon violation of a
                monitoring plan, suspend or revoke the third party administrator
                license or utilization review agent license of:

                        (A) the delegated network;     or

                         (B) a third party with which the delegated             network   has
                contracted.

Id. (emphasis added). The Department’s powers permit it to ensure compliance with the monitoring
plan as a general matter and are not limited to the issues raised in the health maintenance
organization’s request for a written explanation.

         The Department must report to the delegated network and the health maintenance
organization the results of its review not later than the sixtieth day after the date of the Department’s
initial request for documentation.     See id. (enacting Texas Insurance Code article 20A.l8C(i)); see
also id. (“provided, however, the department shall not report to the health maintenance organization
any information regarding fee schedules, prices, cost of care, or other information not relevant to the
monitoring plan”). The delegated network must respond to the Department’s report and submit a
corrective plan to the Department and to the health maintenance organization not later than the
thirtieth day after the date the delegated network receives the Department’s report. See id. (enacting
Texas Insurance Code article 20A. lSC(j)). The delegated network “may withhold information
regarding fee schedules, prices, cost of care, or other information not relevant to the monitoring
plan.” Id.

         The Department’s authority to request that a delegated network take corrective action is not
limited to the issues raised in the health maintenance organization’s request for a written
explanation. Article 20A. 18C provides that the Department may request that a delegated network
take corrective action

                to comply      with    the   department’s     statutory   and     regulatory
                requirements   that:
The Honorable Ron Wilson      - Page 17        (JC-0559)

                   (1) relate to any matters delegated by the health maintenance
               organization to the delegated network; or

                  (2) are necessary to ensure the health maintenance organization’s
               compliance with statutory and regulatory requirements.

Id. (enacting Texas Insurance Code article 2OA.l8C(I)). If a delegated network does not comply
with the Department’s     request for corrective action, the Department may order the health
maintenance organization to temporarily or permanently cease assignment of new enrollees to the
delegated network; temporarily or permanently transfer enrollees to alternative delivery systems to
receive services; or modify or terminate its contract with the delegated network. See id. (enacting
Texas Insurance Code article 20A. 1SC(m)).

         In sum, the Department’s authority under the 1999 version of article 20A. 18C with respect
to a delegated network is dependent on the health maintenance organization first providing the
delegated network with written notice and an opportunity to respond and then requesting the
Department to intervene. The Department’s intervention authority is not limited to the issues raised
in the health maintenance organization’s written notice. We cannot determine in an attorney general
opinion whether the Department is authorized to intervene with respect to a particular delegated
network. We also note, however, that the Department’s authority under article 20A.17 to examine
physicians’ records is independent ofthe Department’s authority under article 20A. 18C. A delegated
network may be a “physician” within the meaning of the Act’s definition of that term. See TEX. INS.
CODE ANN. art. 20A.O2(r) (Vernon Supp. 2002) (defining “physician”).          The Department may
examine .a physician’s records under article 20A. 17 without a health maintenance organization’s
request for intervention.

         With respect to your earlier question about whether the Department may examine a nonprofit
health corporation under article 20A. 18C, see Request Letter, supra note 1, at 5, we conclude that
it may, if the nonprofit health corporation falls within the definition of “delegated network.” Again,
under the Act a “delegated network” is

               an entity, other than a health maintenance organization authorized to
               do business under this Act or an insurer authorized to do business
               under Chapter 3, Insurance Code, which: (i) by itself, or through one
               or more entities, undertakes to arrange for or to provide medical care
               to an enrollee in exchange for a predetermined          payment on a
               prospective    basis; and (ii) performs on behalf of the health
               maintenance organization, any function regulated by this Act. The
               term does not include an individual physician or a group of employed
               physicians practicing medicine under one federal tax identification
               number and whose total claims paid to providers not employed by the
The Honorable Ron Wilson        - Page 18         (JC-0559)

                 group is less than 20 percent of the total collected revenue of the
                 group calculated on a calendar year basis.

Act of May 18,1999,76th Leg., R.S., ch. 62 1, 8 1,1999 Tex. Gen. Laws 3 163,3 164 (enacting Texas
Insurance Code article 20A.02 (ee)). Thus, a nonprofit health corporation will be a delegated
network if it “(i) by itself, or through one or more entities, undertakes to arrange for or to provide
medical care to an enrollee in exchange for a predetermined payment on a prospective basis” and
“(ii) performs on behalf of the health maintenance organization, any function regulated by this Act,”
id., and if it does not fall within the exemption in the second sentence of the definition, see id.

         Your query suggests that a nonprofit health corporation that subcontracts with another entity
to bbperform[] . . . any function regulated by this Act” does not meet the criterion of (ii) in the first
sentence of the definition of “delegated network,” because the nonprofit health corporation itself
does not perform the regulated function. See Request Letter, supra note 1, at 3. We disagree with
this hypertechnical reading of the statute. The statute speaks in terms of performing a regulated
function “on behalf’ of a health maintenance organization, focusing on the health maintenance
organization’s delegation of the performance of regulated functions and the delegated network’s
contractual agreement to take responsibility for the performance of those functions. An entity that
agrees to provide a service for a health maintenance organization by subcontracting for the service,
taking contractual responsibility for the service, bbperforms” the service on behalf of the health
maintenance organization within the meaning of the statute.

        Your query also suggests that the Act’s more general exemption for physicians in article
20A.26@( l)(A) exempts a nonprofit health corporation from any regulation under article 20A. 18C.
See id. at 2. We conclude, however, that the physician exemption in article 20A.26@( l)(A) does
not apply with respect to the definition of delegated networks.

         First, the first criterion in the first sentence of the definition of “delegated network” - “(i) by
itself, or through one or more entities, undertakes to arrange for or to provide medical care” - uses
the term “medical care.” As we have noted, the Act defines the term “medical care” by reference
to the Medical Practice Act, and the term clearly refers to the practice of medicine by physicians.
See TEX. INS. CODE ANN. art. 20A.O2(p) (Vernon Supp. 2002). Only a physician may “by itself. .
. undertake[] . . . to provide medical care” within the meaning of that first criterion. Second, the
exemption for physicians and groups of physicians in the second sentence of the definition indicates
that physicians and groups of physicians that meet the criteria of the first sentence of the definition
and that do not fall within this exemption qualify as delegated networks. See Harris County v.
Crooker, 248 SW. 652, 655 (Tex. 1923) (“The inclusion of the specific limitation excludes all
others.“).    Third, applying the general physician exemption in article 20A.26(f)(l)(A)             to the
definition of delegated networks would render the definition’s specific physician exemption
meaningless.     See Chevron Corp. v. Redmon, 745 S.W.2d 314,316 (Tex. 1987) (Texas Supreme
Court “will give effect to all the words of a statute and not treat any statutory language as surplusage
ifpossible”) (citing Perkins v. State, 367 S.W.2d 140 (Tex. 1963)); R.R. Comm ‘n v. Olin Corp., 690
S.W.2d 628, 631 (Tex. App.-Austin             1985, writ ret d n.r.e.) (“[Elvery word . . . of a statute is
presumed to be intentionally used with meaning and purpose.“); see also TEX. GOV’T CODE ANN.
The Honorable Ron Wilson          - Page 19          (JC-0559)

4 311.021(2) (V emon 1998) (in enacting a statute, it is presumed that “the entire statute is intended
to be effective”)     (Code Construction      Act).   Fourth, the physician exemption        in article
20A.26(f)( l)(A) exempts physicians from regulation under the Act to the extent that they provide
medical care. See TEX. WS. CODE ANN. art. 20A.26@( l)(A) (Vernon Supp. 2002); see also id. art.
20A.29 (Vernon 1981) (“This Act shall not be construed to . . . (b) authorize any person to regulate,
interfere, or intervene in any manner in the practice of medicine or any healing art.“) (emphasis
added). It does not exempt physicians from regulation under the Act to the extent they engage in
other activities, such as performing regulated functions on behalf of a health maintenance
organization pursuant to a delegation agreement. Lastly, article 2 1.52F does not broaden the scope
of article 20A.26(f) with respect to nonprofit health corporations that provide only medical care. See
supra p. 13.

         The Department’s intervention authority under article 20A.18C includes the authority to
examine records of a delegated network. See Act of May 18, 1999, 76th Leg., R.S., ch. 621, 9 2,
1999 Tex. Gen. Laws 3 163,3 167 (enacting Texas Insurance Code article 20A. 18C(h) providing that
upon receipt of a request for intervention, the Department may “( 1) request financial and operational
documents from the delegated network to further investigate deficiencies indicated by the monitoring
plan” and “(2) conduct an on-site audit of the delegated network if the department deterrnines that
the delegated network is not complying with the monitoring standards required under Subsection
(a)( 1) of this section”). Thus, upon receiving a request for intervention from the health maintenance
organization regarding a nonprofit health corporation that is a delegated network, the Department
may examine the nonprofit health corporation. Of course, the Department’s authority under article
20A. 17 to examine the records of a nonprofit health corporation is independent of the Department’s
authority under article 20A.18C and does not require a health maintenance organization’s request
for intervention.

         Finally, because the Department seeks financial information about the nonprofit health
corporation at issue, you ask whether “a physician organization that accepts risk only for medical
services [is] legally required to establish reserves under Texas law?” Request Letter, supra note 1,
at 6; see also id. at 4-5 (noting that Department seeks monthly bank statements and information
regarding reserves). As the Department notes in its brief, there is no specific statutory reserve
requirement for nonprofit health corporations.4 Under the 1999 version of article 20A. 18C, however,
a nonprofit health corporation that is a delegated network may be required to provide proof of its
financial viability pursuant to its written agreement with the health maintenance organization.

       Subsection (a)(8)(A)(iii) of article 20A. 18C provides that the written agreement between a
health maintenance organization and a delegated network must include “an acknowledgment         and
agreement by the delegated network” that the health maintenance organization is “not precluded
from contractually requesting that the delegated network provide proof of financial viability.” Act
of May 18,1999, 76th Leg., R-S., ch. 62 1, 8 2, 1999 Tex. Gen. Laws 3 163, 3 165 (enacting Texas

         4See Brief from Sara Shiplet Waitt, Senior Associate Commissioner, Texas Department of Insurance, to Susan
Denmon Gusky, Chair, Opinion Committee, Office of Attorney General, at 9 (June 14, 2002) (on file with Opinion
Committee).
The Honorable   Ron Wilson    - Page 20        (JC-0559)

Insurance Code article 20A. 1sC(a)(s)(A)(iii)).      If the health maintenance organization requests
pursuant to the written agreement that the delegated network provide proof of financial viability and
the delegated network fails to do so, the Department may intervene. See id. at 3 166 (enacting Texas
Insurance Code article 20A. 18C(d) requiring health maintenance organization that receives
information that delegated network is not operating in accordance with its written agreement to
notify delegated network in writing); id. at 3 167 (enacting Texas Insurance Code article 20A. 18C(g)
providing that health maintenance organization must request Department to intervene if health
maintenance organization and delegated network are unable to reach an agreement as to whether
delegated network is complying with the written agreement).        Although article 20A. 18C does not
expressly authorize the Department to examine a delegated network’s financial information to
determine whether the network is complying with its written agreement with the health maintenance
organization, this authority is implicit in the Department’s express authority to conduct an audit of
the delegated network “if the department deterrnines that the delegated network is not complying
with the monitoring standards” required under section (a)( 1) of article 20A. 18C, see id. (enacting
Texas Insurance Code article 20A. 18C(h)), and its broad powers to require the delegated network
to take corrective action, see id. (enacting Texas Insurance Code article 20A. 18C(Z) providing that
Department may request that a delegated network take corrective action to comply with “the
department’s statutory and regulatory requirements that: (1) relate to any matters delegated by the
health maintenance organization to the delegated network; or (2) are necessary to ensure the health
maintenance organization’s compliance with statutory and regulatory requirements.“); see also id.
(enacting Texas Insurance Code article 20A. 18C(m) specifying Department’s authority if delegated
network fails to take corrective action); see also Pub. Util. Comm ‘n v. City Pub. Serv. Bd., 53
S.W.3d 310, 315 (Tex. 2001) (“[A] state administrative agency has only those powers that the
Legislature expressly confers upon it. But an agency may also have implied powers that are
reasonably necessary to carry out the express responsibilities given to it by the Legislature.“).
The Honorable Ron Wilson    - Page 21        (JC-0559)

                                      SUMMARY

                      A nonprofit health corporation certified by the Texas Board
             of Medical Examiners is a physician for purposes of the Health
             Maintenance Organization Act, chapter 20A of the Texas Insurance
             Code. See TEX. INS. CODE ANN. art. 2OA.O2(r)(2) (Vernon Supp.
             2002). Article 20A.17 of the Insurance Code authorizes the Texas
             Department      of Insurance     to examine      health   maintenance
             organizations.    In connection with the examination of a health
             maintenance organization, the Department is authorized to examine
             records of a nonprofit health corporation, with which the health
             maintenance organization has a contract, that are “relevant to its
             relationship with the health maintenance organization.”          Id. art.
             20A. 17(b)( 1). The Department’s authority to examine a nonprofit
             health corporation under article 20A. 17 depends only on whether the
             health maintenance organization has a contract with the nonprofit
             health corporation and does not depend on whether the nonprofit
             health corporation provides only medical care or is paid on a
             prospective basis under the contract. The Department’s authority to
             examine medical, hospital, and health records is limited to
             examinations of health maintenance organizations concerning the
             quality of health care services. See id. art. 20A.l7(a), (b)(3).

                      Article 20A.18C of the Insurance Code regulates health
             maintenance organizations’ delegation of regulated functions. Under
             article 20A. 18C, as enacted in 1999, the Department’s authority with
             respect to a delegated network depends on the health maintenance
             organization first providing the delegated network with written notice
             and an opportunity to respond and then requesting the Department to
             intervene. The Department’s intervention authority is not limited to
             the issues raised in the health maintenance organization’s written
             notice. A nonprofit health corporation may fall within the statutory
             definition of a “delegated network” and may be subject to
             examination by the Department as a delegated network, if the health
             maintenance organization requests the Department to intervene. This
             examination could include the nonprofit health corporation’s financial
             condition. The Department’s       authority under article 20A. 17 to
             examine the records of a nonprofit health corporation is independent
             of the Department’s authority under article 20A.18C and does not
             require a health maintenance organization’s request for intervention.

                                             Attorney General of Texas
The Honorable Ron Wilson     - Page 22      (JC-0559)

HOWARD G. BALDWIN, JR.
First Assistant Attorney General

NANCY FULLER
Deputy Attorney General - General Counsel

SUSAN DENMON GUSKY
Chair, Opinion Committee

Mary R. Crouter
Assistant Attorney General, Opinion Committee