Senate Bill No. 405
(By Senators Helmick, Schoonover, Jackson, Plymale, Ross and Sharpe)
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[Introduced February 15, 1996; referred to the Committee on Health and Human Resources; and then to the Committee on Finance.]
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A BILL to amend chapter sixteen of the code of West Virginia, one thousand nine hundred thirty-one, as amended, by adding thereto a new article, designated article one-c, relating to the formation, operation and regulation of health provider cooperatives; construction of a health provider cooperative as neither an insurer, health maintenance organization, service or health care corporation nor the corporate practice of medicine or other health care profession; participation agreements; contracts with payors and requirements for capitated or similar risk-sharing contracts; review and approval of such contracts by the commissioner of insurance and exemption from review by the health care cost review authority; evidence of financial soundness to be filed with the commissioner of insurance and termination of contracts if the health provider cooperative is not solvent; prohibited practices and penalties therefor; and enforcement and adoption of rules by the commissioner of insurance.

Be it enacted by the Legislature of West Virginia:
That chapter sixteen of the code of West Virginia, one thousand nine hundred thirty-one, as amended, be amended by adding thereto a new article, designated article one-c, to read as follows:
ARTICLE 1C. HEALTH PROVIDER COOPERATIVES.
§16-1C-1. Legislative findings and intent.
The Legislature finds that:
(a) The goals of containing health care costs, improving the quality of health care and increasing the access of this state's citizens to health care services will be enhanced by the expanded use of managed care and community-based delivery systems.
(b) The use of both managed care and community-based delivery systems will be expanded by the formation and operation of health provider networks.
(c) The formation and operation of health provider networks is hindered by existing and proposed restrictions upon and uncertainty regarding such networks' ability to contract with third-party payors and self-insured persons to provide health care services, including on a capitated basis.
(d) The citizens of this state subscribing to or benefiting from subscriptions to or contracts with health provider networks must be adequately protected against the insolvency of such networks and assured of their continued coverage and receipt of health care services.
(e) The formation, operation and regulation of health provider cooperatives pursuant to this article will expand the use of managed care and community-based delivery systems while adequately protecting the citizens of this state.
§16-1C-2. Definitions.
(a) The term "capitation" means a fixed amount paid by a payor to a health provider cooperative under contract with the payor in exchange for the rendering of health care services.
(b) The term "commissioner" means the state commissioner of insurance.
(c) The term "enrollee," "member" or "subscriber" means an individual who has been voluntarily enrolled in a managed care plan provided by a health provider cooperative.
(d) The term "financially sound" or "fiscally sound" means that, according to presently accepted actuarial standards of practice, consistently applied and fairly stated, that the payments to be made under a contract, together with estimated investment earnings thereon, make adequate provision for the anticipated cash flows required by the contractual obligations and related expenses of the parties to the contract.
(e) The term "health care provider" means any physician, hospital or other person or entity that is licensed or otherwise authorized to provide health care services in this state.
(f) The term "health care services" means any services or goods included in the furnishing to any individual of medical, behavioral health or dental care, or hospitalization or incident to the furnishing of the care or hospitalization, osteopathic services, home health, health education or rehabilitation, as well as the furnishing to any person of any and all other services or goods for the purpose of preventing, alleviating, curing or healing human illness or injury.
(g) The term "health provider cooperative" means a legal entity organized and regulated under this article and operated to provide health care services to enrollees of managed care plans purchased by payors.
(h) The term "managed care plan" means the program or programs of health care services offered to payors by a health provider cooperative.
(i) The term "participant" means a health care provider or an organization owned, controlled or affiliated with one or more health care providers, including, without being limited to, a professional corporation, partnership or other similar organization.
(j) The term "payor" means any insurer or other person responsible for providing payment for health care services, including, but not limited to, the department of health and human resources, the public employees insurance agency, the bureau of workers' compensation or any other state agency, a health maintenance organization or any self-insured person.
(k) The term "qualified independent actuary" means an actuary who is a member of the American academy of actuaries or the society of actuaries and has experience in establishing rates for entities similar to health provider cooperatives and who has no financial or employment interest in the health provider cooperative.
§16-1C-3. Organization; powers.
A health provider cooperative may be organized as a corporation under article one, chapter thirty-one of this code, as a limited liability company under article one-a, chapter thirty-one of this code, or in any other form that constitutes a legal entity under the laws of this state and shall have such powers as are available under the applicable authorizing law. If a provision of this article conflicts with such authorizing law, the provision of this article shall apply. The state or federal government or any agency or political subdivision of the state or federal government may be a participant in a health provider cooperative. A health provider cooperative shall not be considered an insurer, health maintenance organization, hospital, medical, dental or health service corporation, health care corporation or any other person governed by chapter thirty-three of this code. Operations of the health provider cooperative shall not be construed as the corporate practice of medicine or other health care profession prohibited by chapter thirty of this code: Provided, That each participant is licensed or otherwise authorized under the laws of this state to provide the health care services it is providing.
§16-1C-4. Participation agreements.
A health provider cooperative and its participants may execute participation agreements permitting the participant to provide some or all of their health care services through the health provider cooperative to the enrollees of a managed care plan.
§16-1C-5. Payor contracts.
A payor may execute contracts for the purchase of health care services from a health provider cooperative in accordance with this section. A contract between a health provider cooperative and a payor may provide for payment by the payor on a capitated or similar risk-sharing basis only if the following are met:
(a) The contract shall be in writing;
(b) The contract shall provide:
(1) If the payor fails to pay for health care services as set forth in the contract, the enrollee is not liable to the health provider cooperative or the participant for any sums owed by the payor;
(2) A participant, agent, trustee or assignee thereof may not maintain any action at law against an enrollee to collect sums owed by the payor; and
(3) The health provider cooperative shall continue to provide services to the enrollees for not less than thirty days after a default by the payor under the payment provisions of the contract.
(c) The contract shall be filed by the health provider cooperative with the commissioner. Within thirty days of the date the contract was filed, the commissioner shall review the contract to determine if it includes evidence of the specific procedures used to inform prospective enrollees of any limitations imposed on the enrollee's right to receive care from a health care provider of the enrollee's choice and if it complies with the provisions of this section and section five of this article. If the contract does not include such evidence or does not so comply, the commissioner shall disapprove the contract and shall notify the health provider cooperative of his disapproval in writing not later than the forty-fifth day after the date the contract was filed. If such disapproval has not been received by the forty-fifth day, the contract shall take effect. The commissioner shall promulgate procedural rules pursuant to chapter twenty-nine-a of this code to implement this subsection.
(d) Any contract approved under this section shall be exempt from review by the health care cost review authority under section twenty, article twenty-nine-b of this chapter.
§16-1C-6. Financial soundness.
(a) Prior to entering into any contract with a payor that is not either licensed by the commissioner under chapter thirty- three of this code or an agency of this state or the federal government, which contract provides for capitation or any other risk-sharing arrangement, the health provider cooperative shall file with the commissioner evidence that it is financially sound. For the purposes of this section a contract under which a health provider cooperative assumes a corridor of risk not greater than ten percent during its first year of operation and not greater than twenty percent in any year thereafter shall not be considered a risk-sharing arrangement. Such evidence shall include, at a minimum, the following:
(1) Evidence that the health provider cooperative has positive working capital in the form of cash or equivalent liquid assets at least equal to one month's claims;
(2) Either: (i) An opinion of a qualified independent actuary, which states that the entry of the contract by the health provider cooperative is financially sound, together with an agreement to have a qualified independent actuary reexamine the health provider cooperative's contract on not less than a semiannual basis and provide the commissioner with an opinion regarding such examination; or
(ii) Evidence that the health provider cooperative has secured its performance under the contract with a policy of stop- loss insurance or reinsurance of not less than two million dollars, a letter of credit from a financial institution satisfactory to the commission in an amount not less than two million dollars, or a guarantee from an organization with a surplus of at least two million dollars; and
(3) Audited financial statements from the most recent fiscal year, together with an agreement to furnish such statements to the commissioner each year, within ninety days of the end of the fiscal year.
(b) If the commissioner determines at any time that a health provider cooperative is not solvent, all contracts shall be terminated: Provided, That the participants of the insolvent health provider cooperative shall continue to provide health care services to the enrollees for sixty days after such termination.
§16-1C-7. Prohibited practices; penalties.
(a) It is unlawful for any person or any agent, officer or employee thereof to coerce or require any person to agree, either in writing or orally, not to join or become or remain a participant in any health provider cooperative as a condition of securing or retaining a contract for health care services with the person.
(b) It is unlawful for any person or any combination of persons or any agents, officers or employees thereof to engage in acts or coercion, intimidation or boycott of, or any refusal to deal with, any health care provider because that provider is participating or may participate in a health provider cooperative.
(c) It is unlawful for any health provider cooperative to engage in any acts of coercion, intimidation or boycott of, or any concerted refusal to deal with, any payor that can demonstrate to the health provider cooperative, either through licensure by the commissioner or otherwise, that it is financially stable, which payor seeks to contract with the cooperative on a competitive, reasonable and nonexclusive basis.
(d) Nothing in this section shall be construed to require a health provider cooperative to admit as a participant any health care provider that applies and agrees to meet the requirements of participation.
(e) Subject to subsections (a) through (c) of this section, a health provider cooperative shall not be considered a combination in restraint of trade, and any participation agreements that contain provisions regarding the price the cooperative will charge to payors or regarding the prices the participants will charge to the cooperative, or regarding the allocation of gains or losses among the participants, or regarding the delivery, quality, allocation or location or health care services to be provided, are not contracts that unreasonably restrain trade.
(f) Violation of any provision of this section shall be considered a violation under section eighteen, chapter forty- eight of this code.
§16-1C-8. Enforcement; rules.
This article shall be enforced by the commissioner, who shall have all the powers with respect thereto provided by article two, chapter thirty-three of this code. The commissioner may adopt rules to implement this article but shall not expand the restrictions upon health provider cooperatives set forth in this article and shall amend any rules in existence on the date of enactment of this article in conflict with this article.

NOTE: The purpose of this bill is to authorize the formation, operation and regulation of health provider cooperatives, which are neither insurers or health maintenance organizations nor the corporate practice of medicine; to authorize participation agreements among the participants in the cooperative; to set forth requirements for payor contracts that provide for payment on a capitated or similar risk-sharing basis; to require such payor contracts to be filed with and approved by the Insurance Commissioner but exempt from review by the Health Care Cost Review Authority; to require a health provider cooperative to provide the Insurance Commissioner with evidence of its financial soundness and annual financial statements; to provide for termination of contracts of an insolvent cooperative but continued services for 60 days; to set forth prohibited practices and the penalties therefor; and to provide for enforcement of the article and the adoption of rules for its implementation by the Insurance Commissioner.

This is a new article; therefore, underlining and strike- throughs have been omitted.