28 CA ADC § 1300.75.4.2
28 CCR s 1300.75.4.2
Cal. Admin. Code tit. 28, s 1300.75.4.2
CALIFORNIA CODE OF REGULATIONS
TITLE 28. MANAGED HEALTH CARE
DIVISION 1. THE DEPARTMENT OF MANAGED HEALTH CARE
CHAPTER 2. HEALTH CARE SERVICE PLANS
ARTICLE 9. FINANCIAL RESPONSIBILITY
RISK-BEARING ORGANIZATIONS
This database is current through 06/09/06, Register 2006, No. 23.
s 1300.75.4.2. Organization Information.
Every contract involving a risk arrangement between a plan and an
organization shall require the organization to do the following:
(a) Beginning January 1, 2006 maintain at all times a minimum
"cash-to-claims ratio," as defined in section 1300.75.4(f), of 0.60 that
shall be increased according to the following schedule:
(1) Beginning on July 1, 2006 the minimum cash-to-claims ratio shall be
0.65; and
(2) Beginning on January 1, 2007 and thereafter the minimum cash-to-claims
ratio shall be 0.75.
(b) Quarterly Financial Survey. For each quarter beginning on or after
July 1, 2005 submit to the Department, not more than forty-five (45) days
after the close of each quarter of the fiscal year, a quarterly financial
survey report in an electronic format to be supplied by the Department of
Managed Health Care (Department) pursuant to section 1300.41.8 of Title
28, California Code of Regulations, containing all of the following:
(1) For organizations serving at least 10,000 covered lives under all risk
arrangements as of December 31 of the preceding calendar year:
(A) Financial survey report (including a balance sheet, an income
statement, and a statement of cash flows), or in the case of a nonprofit
entity comparable financial statements and supporting schedule information
(including but not limited to, aging of receivable information),
reflecting the results of operations for the immediately preceding
quarter, prepared in accordance with generally accepted accounting
principles (GAAP) and the identification of the individual or office in
the organization designated to receive public inquiries. Financial survey
reports of an organization required pursuant to these rules shall be on a
combining basis with an affiliate, if the organization or such affiliate
is legally or financially responsible for the payment of the
organization's claims. Any affiliated entity included in this report shall
be separately identified reported in a combining schedule format. For the
purposes of this section, an organization's use: 1. of a "sponsoring
organization" arrangement to reduce its liabilities for the purposes of
calculating tangible net equity and working capital or 2. an affiliated
entity to provide claims processing services shall not be construed to
automatically create a legal or financial obligation to pay the claims
liability for the health care services for enrollees.
(B) A statement as to what percentage of completed claims the organization
has timely reimbursed, contested, or denied during the quarter in
accordance with the requirements of Health and Safety Code sections 1371,
and 1371.35, section 1300.71 of Title 28 of the California Code of
Regulations, and any other applicable state and federal laws and
regulations. If less than 95% of all complete claims have been reimbursed,
contested or denied on a timely basis, the statement shall be accompanied
by a report that describes the reasons why the claims adjudication process
is not meeting the requirements of applicable law, any action taken to
correct the deficiency, and any results of that action. This claims
payment report is for the purpose of monitoring the financial solvency of
the organization and is not intended to change or alter existing state and
federal laws and regulations relating to claims payment settlement
practices and timeliness.
(C) A statement as to whether or not: 1. the organization has estimated
and documented, on a monthly basis, its liability for IBNR claims,
pursuant to a method specified in section 1300.77.2, and 2. the estimates
are the basis for the quarterly financial survey report submitted under
these Solvency Regulations. If the estimated and documented liability has
not met the requirements of section 1300.77.2 in any way, a statement
shall be included in the quarterly financial survey report that describes
in detail the following with respect to each deficiency: the nature of the
deficiency, the reasons for the deficiency, the action taken to correct
the deficiency, and the results of that action. An organization failing:
a. to estimate and document, on a monthly basis, its liability for IBNR
claims or b. to maintain its books and records on an accrual accounting
basis shall be deemed to have failed to maintain, at all times, positive
tangible net equity (TNE) and positive working capital as set forth in
subsection (D) below.
(D)1. A statement as to whether or not the organization has at all times
during the quarter maintained positive TNE, as defined in section
1300.76(e) of Title 28 California Code of Regulations; and has at all
times during the quarter maintained positive working capital, calculated
in a manner consistent with GAAP. If either the required TNE or the
required working capital has not been maintained at all times, a statement
shall be included in the quarterly financial survey report that describes
in detail the following, with respect to each deficiency: the nature of
the deficiency, the reasons for the deficiency, any action taken to
correct the deficiency, and any results of that action.
2. The organization may reduce its liabilities or increase its cash for
purposes of calculating its TNE, working capital and cash-to-claims ratio
in a manner allowed by Health and Safety Code section 1375.4(b)(1)(B) so
long as the sponsoring organization has filed with the Department: a. its
audited annual financial statements within 120 days of the end of the
sponsoring organization's fiscal year and b. a copy of the written
guarantee meeting the requirements of Health and Safety Code section
1375.4(b)(1)(B). For purposes of Health and Safety Code section
1375.4(b)(1)(B), a sponsoring organization shall have a TNE of at least
twice the total of all amounts that it has guaranteed to all persons and
entities, or a lesser amount in situations where the organization can
demonstrate to the Director's satisfaction and written approval that a
lesser amount of TNE is sufficient. If an organization has a sponsoring
organization, the organization shall provide information to the Department
demonstrating the capacity of the sponsoring organization to guarantee the
organization's debts, as well as the nature and scope of the guarantee
provided, consistent with Health and Safety Code section 1375.4(b)(1)(B).
(E) For the quarter beginning on or after January 1, 2006, a statement as
to whether or not the organization has, at all times during the quarter,
maintained a cash-to-claims ratio as required in section (a), calculated
in a manner consistent with GAAP. If the required cash-to-claims ratio has
not been maintained at all times, a statement shall be included in the
quarterly financial survey report that describes in detail the following
with respect to the deficiency: the nature of the deficiency, the reasons
for the deficiency, any action taken to correct the deficiency, and any
results of that action.
(2) For organizations serving less than 10,000 covered lives under all
risk arrangements as of December 31 of the preceding calendar year:
(A) The disclosure statement(s) set forth in sections (b)(1)(B), (C), (D)
and (E) above.
(B) In the event an organization serving less than 10,000 covered lives
under all risk arrangements: 1. fails to satisfactorily demonstrate its
compliance with the Grading Criteria; 2. experiences an event that
materially alters the organization's ability to remain compliant with the
Grading Criteria; 3. is found, by the external party's review or audit
activities, to potentially lack sufficient financial capacity to continue
to accept financial risk for the delivery of health care services
consistent with the requirements of section 1300.70(b)(2)(H)(1); or 4. is
found, through the Department's HMO Help Center, medical audits and
surveys, or any other source, to be delaying referrals, authorizations, or
access to basic health care services based on financial considerations,
the organization shall, within 30 calendar days of the Department's
written request, begin submitting complete quarterly financial survey
reports pursuant to section 1300.75.4.2(b)(1).
(c) Annual Financial Survey.
(1) Regardless of the number of covered lives served under all risk
arrangements, submit to the Department, not more than one hundred fifty
(150) days after the close of the organization's fiscal year beginning on
or after January 1, 2005, and not more than one hundred fifty (150) days
after the close of each of the organization's subsequent fiscal years, an
annual financial survey report in an electronic format to be supplied by
the Department pursuant to section 1300.41.8 of Title 28 California Code
of Regulations, based upon the organization's annual audited financial
statement prepared in accordance with generally accepted auditing
standards, and containing all of the following:
(2) Annual financial survey report, based upon the organization's annual
audited financial statements (including at least a balance sheet, an
income statement, a statement of cash flows, and footnote disclosures), or
in the case of a nonprofit entity, comparable financial statements, and
supporting schedule information, (including, but not limited, to aging of
receivable information and debt maturity information), for the immediately
preceding fiscal year, prepared by the independent certified public
accountant in accordance with GAAP.
(3) Financial survey reports of an organization required pursuant to these
Solvency Regulations shall be on a combining basis with an affiliate if
the organization or such affiliate is legally or financially responsible
for the payment of the organization's claims. Any affiliated entity
included in the report shall be separately identified. For the purposes of
this section, an organization's use of: (A) a "sponsoring organization"
arrangement to reduce its liabilities for the purposes of calculating TNE
and working capital or (B) an affiliated entity to provide claims
processing services shall not be construed to automatically create a legal
or financial obligation to pay claims liability for health care services
for enrollees.
1. When combined financial statements are required by this regulation, the
independent accountant's report or opinion must address all the entities
included in the combined financial statements. If the accountant's report
or opinion makes reference to the fact that another auditor performed a
part of the examination, the organization shall also file the report or
opinion issued by the other auditor.
2. For purposes of determining the independence of the certified public
accountant, the regulations of the California State Board of Accountancy
(Division 1, sections 1 through 99.2, Title 16, California Code of
Regulations), shall apply.
(4) The opinion of the independent certified public accountant indicating:
(A) whether the organization's annual audited financial statements present
fairly, in all material respects, the financial position of the
organization, and whether the financial statements were prepared in
accordance with GAAP. If the opinion is qualified in any way, the survey
report shall include an explanation regarding the nature of the
qualification.
(5) A statement as to whether or not the organization has estimated and
documented, on a monthly basis, its liability for IBNR claims, pursuant to
a method specified in section 1300.77.2, and that these estimates are the
basis for the financial survey reports submitted under these Solvency
Regulations. If the estimated and documented liability has not met the
requirements of section 1300.77.2, a statement shall be included in the
annual financial survey report that describes in detail the following with
respect to each deficiency: the nature of the deficiency, the reasons for
the deficiency, the action taken to correct the deficiency, and the
results of that action. An organization failing: (A) to estimate and
document, on a monthly basis, its liability for IBNR claims, or (B) to
maintain its books and records on an accrual accounting basis, shall be
deemed to have failed to maintain, at all times, positive TNE and positive
working capital as set forth in subsection (6)(A) below.
(6)(A) A statement as to whether or not the organization has, at all times
during the year, maintained positive TNE, as defined in section
1300.76(e); and has, at all times during the year, maintained positive
working capital, calculated in a manner consistent with GAAP. If either
the required TNE or the required working capital has not been maintained
at all times, a statement shall be included in the annual financial survey
report that describes in detail the following with respect to each
deficiency: the nature of the deficiency, the reasons for the deficiency,
any action taken to correct the deficiency, and any results of that
action.
(B) The organization may reduce its liabilities for purposes of
calculating its TNE and working capital in a manner allowed by Health and
Safety Code section 1375.4(b)(1)(B), so long as the sponsoring
organization has filed, with the Department: 1. its audited annual
financial statements within 120 days of the end of the sponsoring
organization's fiscal year and 2. a copy of the written guarantee meeting
the requirements of Health and Safety Code section 1375.4(b)(1)(B). For
purposes of Health and Safety Code section 1375.4(b)(1)(B), a sponsoring
organization shall have a TNE of at least twice the total of all amounts
that it has guaranteed to all persons and entities, or a lesser amount in
situations where the organization can demonstrate to the Director's
satisfaction and written approval that a lesser amount of TNE is
sufficient. If an organization has a sponsoring organization, the
organization shall provide information to the Department demonstrating the
capacity of the sponsoring organization to guarantee the organization's
debts as well as the nature and scope of the guarantee provided consistent
with Health and Safety Code section 1375.4(b)(1)(B).
(7) For the fiscal year beginning on or after January 1, 2006, a statement
as to whether or not the organization has at all times during the year
maintained a cash-to-claims ratio as required in section (a), calculated
in a manner consistent with GAAP. If the required cash-to-claims ratio has
not been maintained at all times, a statement shall be included in the
quarterly financial survey report that describes in detail the following
with respect to the deficiency: the nature of the deficiency, the reasons
for the deficiency, any action taken to correct the deficiency, and any
results of that action.
(8) A statement as to whether the organization maintains reinsurance
and/or professional stop-loss coverage.
(9) The annual financial survey report shall include, as an attachment, a
copy of the complete annual audited financial statement, including
footnotes and the certificate or opinion of the independent certified
public accountant.
(d) Statement of Organization Survey. Submit to the external party, a
"Statement of Organization," in an electronic format, prepared by the
Department, to be filed along with the annual financial survey report,
which shall include the following information, as of December 31 of each
calendar year prior to the filing:
(1) Name and address of the organization;
(2) A financial and public contact person, with title, address, telephone
number, fax number, and e-mail address;
(3) A list of all health plans with which the organization maintains risk
arrangements;
(4) Whether the organization is an Independent Practice Association (IPA),
Medical Group, Foundation, other entity, or some combination thereof. If
the organization is a foundation, identify each and every medical group
within the foundation, and whether any of those medical groups
independently qualifies as a risk-bearing organization as defined in
Health and Safety Code section 1375.4(g);
(5) Whether the organization is a professional corporation, partnership,
not-for-profit corporation, sole proprietor, or other form of business;
(6) The name, business address and principal officer of each of the
organization's affiliates as defined in Title 28, California Code of
Regulations, section 1300.45(c)(1) and (2);
(7) Whether the organization is partially or wholly owned by a hospital or
hospital system;
(8) A matrix listing all major categories of medical care offered by the
organization, including, but not limited to, anesthesiology, cardiology,
orthopedics, ophthalmology, oncology, obstetrics/gynecology and radiology.
(A) Next to each listed category in the matrix, a disclosure of the
primary compensation model (salary, fee-for-service, capitation, other)
used by the organization to compensate the majority of providers of that
category of care;
(9) An approximation of the number of enrollees served by the organization
under a risk arrangement, pursuant to a list of ranges developed by the
Department;
(10) Any Management Services Organization (MSO) that the organization
contracts with for administrative services;
(11) The total number of contracted physicians in employment and/or
contractual arrangements with the organization;
(12) Disclosure of the organization's primary service area (excluding
out-of-area tertiary facilities and providers) by California county or
counties;
(13) The identification of the organization's address, telephone number
and website link, if available, where providers may access written
information and instructions for filing of provider disputes with the
organization's Dispute Resolution Mechanism consistent with requirements
of section 1300.71.38 of Title 28, California Code of Regulations; and,
(14) Provide any other information that the Director deems reasonable and
necessary, as permitted by law, to understand the operational structure
and finances of the organization.
(e) Submit a written verification for each report made under subsections
(b), (c), and (d) of this section stating that the report is true and
correct to the best knowledge and belief of a principal officer of the
organization, and signed by a principal officer, as defined by section
1300.45(o) of Title 28, California Code of Regulations.
(f) Notify the Department and each contracting health plan no later than
five (5) business days after discovering that the organization has
experienced any event that materially alters its financial situation or
threatens its solvency.
(g) Permit the Department to make any examination that it deems reasonable
and necessary to implement Health and Safety Code section 1375.4, and
provide to the Department, upon request, any books or records deemed
relevant or useful to implementing this section for inspection and
copying, as permitted by law.
Note: Authority cited: Sections 1344 and 1375.4, Health and Safety Code.
Reference: Section 1375.4, Health and Safety Code.
HISTORY
1. New section filed 8-10-2005; operative 9-9-2005 (Register 2005, No.
32).
For prior history, see Register 2002, No. 28.
28 CA ADC s 1300.75.4.2
END OF DOCUMENT
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