COMAR 31.10.22 · Chapter 22 Provider-Sponsored Organizations

Administrative History Effective date: Regulations .01 — .15 adopted as an emergency provision effective June 29, 1999 (26:15 Md. R. 1146); emergency status extended at 27:3 Md. R. 326; emergency status expired April 17, 2000; adopted permanently effective May 15, 2000 (27:9 Md. R. 860) Authority Health-General Article, Title 19, Subtitle 7A, Annotated Code of Maryland

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.01 Scope. The scope of this chapter is the scope of Health-General Article, Title 19, Subtitle 7A, Annotated Code of Maryland, as it relates to the Insurance Commissioner.

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.02 Definitions. A. In this chapter, the following terms have the meanings indicated. B. Terms Defined. (1) "Commissioner" means the Maryland Insurance Commissioner. (2) "Contract" means the contractual agreement for the provision of health care services on a prepaid, capitated basis entered into between a provider-sponsored organization and the Health Care Finance Administration to provide health care benefits to medicare program beneficiaries. (3) "Enrollee" means an individual who is enrolled in a provider-sponsored organization. (4) Health Care Delivery Assets. (a) "Health care delivery assets" means any tangible asset that is part of a provider-sponsored organization operation. (b) "Health care delivery assets" includes: (i) Hospitals, medical facilities, and their ancillary equipment; and (ii) Property as may reasonably be required for a provider-sponsored organization's principal office or for such purposes as may be necessary in the transaction of the business of a provider-sponsored organization. (5) "Health Care Finance Administration" means the Health Care Finance Administration of the federal Department of Health and Human Services. (6) "Health care services" means a health or medical procedure or service rendered by a health care provider that: (a) Provides testing, diagnosis, or treatment of a human disease or dysfunction; or (b) Dispenses drugs, medical devices, medical appliances, or medical goods for the treatment of a human disease or dysfunction. (7) "Insolvent" means the condition of having been: (a) Declared as not meeting the fiscal requirements for continued licensing; or (b) Placed under an order of liquidation by a court of competent jurisdiction. (8) "Leasehold estate improvements" means improvements made to property that is leased by a provider-sponsored organization and used by it to provide health care services directly. (9) "Net worth" means the excess of total admitted assets over liabilities, but the liabilities may not include fully subordinated debt. (10) "Provider" means a physician, hospital, or other person licensed or otherwise authorized to provide health care services. (11) "Provider-sponsored organization" has the meaning stated in Health-General Article, §19-7A-01(f), Annotated Code of Maryland. (12) "Subordinated debt" means a surplus account item derived from the subordination of provider-sponsored organization debts to owners, medical providers, or other creditors.

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.03 Certificate of Authority Required. Before a person may operate as a provider-sponsored organization under the federal Medicare+Choice Program, the person shall obtain a certificate of authority from the Commissioner.

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.04 Application for Certificate of Authority. A. Submission of Application. An applicant shall submit an application for a certificate of authority to the Commissioner at least 90 days before the date that the applicant proposes to engage in business in the State. B. Provision of Application Form. The Commissioner shall provide an application form to an applicant on request. C. Filing of Information. Each applicant seeking a certificate of authority to transact business in the State shall file the following items with the Commissioner: (1) If incorporated, a copy of the articles of incorporation of the applicant and any amendments to the articles of incorporation, certified by the Department of Assessments and Taxation; (2) A copy of the applicant's current bylaws, certified by the appropriate officer of the applicant; (3) A list of the names, addresses, and official capacity with the applicant of the individuals who are to be responsible for conducting the applicant's affairs, including all members of the governing body, the officers and directors in the case of a corporation, and the partners or associates in the case of a partnership or association; (4) A resume of the qualifications of the administrator, the medical director, each officer, and each other individual associated with the applicant or as requested by the Commissioner; (5) A statement generally describing the: (a) Applicant and its structure, (b) Applicant's operations, (c) The location of the facilities at which health care services will be regularly available to members, and (d) The type, specialty, and number of physicians and health care personnel engaged or contracted with to provide health care services; (6) A statement describing with reasonable certainty the geographic area to be served by the applicant; (7) A certified statement of the financial condition of the applicant, including: (a) Sources of financial support, (b) Assets and liabilities and minimum net worth, and (c) Other financial information the Commissioner requires for adequate financial evaluation; (8) Copies of proposed techniques and methods of marketing the services of the applicant; (9) A power of attorney duly executed by the applicant appointing the Commissioner and the Commissioner's duly authorized deputies as the true and lawful attorney of the applicant in and for the State on whom may be served all lawful process in any action, proceeding, or cause of action arising in the State against the applicant; (10) A certificate of compliance evidencing employee coverage under the Maryland Workers' Compensation Act ( Labor and Employment Article, Title 9, Annotated Code of Maryland ); and (11) A prospective budget and expected cash flow analysis for the first 12 months of the applicant's anticipated operation, demonstrating its financial viability based on reasonable assumptions. D. Disclosure. Each individual who is responsible for the conduct of the affairs of an applicant shall disclose to the Commissioner and the governing body of the applicant the extent and nature of any contracts or arrangements between the individual and the applicant, including any possible conflicts of interest. E. Insurance—General Liability and Medical Malpractice. (1) An applicant may not obtain a certificate of authority until the applicant: (a) Submits to the Commissioner evidence of general liability and medical malpractice insurance or a plan of self-insurance to cover general liability and medical malpractice; and (b) Obtains approval of its insurance or plan of self-insurance from the Commissioner with respect to the amount of coverage and type of coverage. (2) With each annual report, a provider-sponsored organization shall submit to the Commissioner evidence of renewal of insurance or continuation of self-insurance. F. Advertising. Before using any advertising that has been approved by the Health Care Financing Administration, a provider-sponsored organization shall file a copy of the advertising with the Commissioner.

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.05 Net Worth Requirements. A. Initial Net Worth. An applicant may not obtain a certificate of authority unless the applicant has an initial net worth of at least: (1) $1,500,000; or (2) $1,000,000, based on evidence from the applicant's financial plan, as required by 42 CFR §422.384, demonstrating to the Commissioner's satisfaction that the applicant has available to it an administrative infrastructure that the Commissioner considers appropriate to reduce, control, or eliminate start-up administrative costs. B. Minimum Net Worth. (1) After issuance of a certificate of authority, a provider-sponsored organization shall maintain at least the minimum net worth required under this section. (2) Except as provided in §C of this regulation , each provider-sponsored organization shall maintain a minimum net worth equal to the greater of: (a) $1,000,000; (b) 2 percent of annual premium revenues as reported on the most recent annual financial statement filed with the Commissioner on the first $150,000,000 of premium and 1 percent of annual premium revenues on the premium in excess of $150,000,000; (c) An amount equal to the sum of 3 months uncovered health care expenditures as reported on the most recent financial statement filed with the Commissioner; or (d) Using the most recent annual financial statement filed with the Commissioner, an amount equal to the sum of: (i) 8 percent of annual health care expenditures paid on a non-capitated basis to non-affiliated providers, (ii) 4 percent of annual health care expenditures paid on a capitated basis to non-affiliated providers plus annual health care expenditures paid on a non-capitated basis to affiliated providers, and (iii) Annual health care expenditures that are paid on a capitated basis to affiliated providers that are not included in the calculation of the net worth requirement under §§A and B(2)(d)(i) and (ii) of this regulation. C. Determining Net Worth. In determining net worth: (1) A debt may not be considered fully subordinated unless the subordination clause is in a form acceptable to the Commissioner; (2) Any interest obligation relating to the repayment of a subordinated debt shall be similarly subordinated; (3) The interest expense relating to the repayment of any fully subordinated debt shall be considered covered expenses; and (4) Any debt incurred by a note meeting the requirements of this section, and otherwise acceptable to the Commissioner, is not considered a liability and shall be recorded as equity. D. Composition of Assets. To meet the minimum net worth requirements, a provider-sponsored organization shall have the following composition of assets: (1) At the time of application, at least $750,000 of the minimum net worth shall be in cash or cash equivalents; (2) After the effective date of the Medicare+Choice contract, the greater of $750,000 or 40 percent of the minimum net worth amount shall be in cash or cash equivalents; (3) During the licensing process, up to 10 percent of the minimum net worth amount may be comprised of intangible assets except that, if a provider-sponsored organization keeps $1,000,000 in cash or cash equivalents and does not use the administrative reduction, then up to 20 percent of that provider-sponsored organization's minimum net worth may be comprised of intangible assets; (4) After the licensing process, a provider-sponsored organization shall keep the greater of $1,000,000 or 67 percent of the ongoing minimum net worth in cash or cash equivalents to qualify for the 20 percent level on intangibles; (5) Subject to §D(1)—(4) of this regulation, health care delivery assets may be admitted at 100 percent of their value according to generally accepted accounting principles (GAAP); and (6) Subject to §D(1)—(5) of this regulation, other assets may be admitted according to their value under statutory accounting practices (SAP).

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.06 Determination of Financial Condition. A. Additional Assets. In any determination of the financial condition of an applicant or provider-sponsored organization, in addition to the assets under Regulation .05 of this chapter , the following assets are allowed: (1) Cash in the possession of the applicant or provider-sponsored organization or in transit under its control, and the balance of any deposit of the applicant or provider-sponsored organization in a solvent bank or trust company; (2) Investments and securities owned and held by the applicant or provider-sponsored organization, free and clear of any liens, encumbrances, pledges, or judgements, and the income due or accrued on the investments and securities; (3) Member premium charges in the course of collection, not more than 90 days past due (the foregoing limitation does not apply to amounts payable directly by the federal government under the Medicare+Choice contract); (4) Health care delivery assets in accordance with Regulation .05C of this chapter ; (5) Prepaid charges on contracts with other organizations or hospitals, or other persons as approved by the Commissioner; (6) Pharmaceutical and medical supply inventories; (7) Cost of land and depreciated cost of buildings owned and occupied by the applicant or provider-sponsored organization and used to directly provide health care, in excess of any encumbrances on it; (8) Leasehold estate improvements, if the initial cost is amortized over the useful life of the improvements but not beyond the termination of the lease; (9) Electronic, mechanical, and computer hardware including the operating system software used for data processing and accounting purposes, the cost of which shall be amortized in full over a period not to exceed 5 calendar years; and (10) Other assets, not inconsistent with the foregoing provisions, deemed by the Commissioner available for the provision of health care, at values to be determined by the Commissioner. B. Non-Admitted Assets. The following may not be allowed as assets in determining the financial condition of an applicant or provider-sponsored organization: (1) Deferred acquisition costs; (2) Subject to the provisions of Regulation .05 of this chapter , good will, trade names, and other similar intangible assets; (3) Advances to officers, whether secured or not, and advances to employees, agents, and other persons on personal security only; (4) Stock of the applicant or provider-sponsored organization, owned by it, or any equity in it or loans secured by it, or any proportionate interest in the stock through the ownership by the applicant or provider-sponsored organization or an interest in another firm, corporation, or business unit; (5) The amount, if any, by which the aggregate book value of investments as carried in the ledger assets of the applicant or provider-sponsored organization exceeds the aggregate value of the investments as determined by the values approved annually by the Securities Valuation Office of the National Association of Insurance Commissioners; and (6) Furniture and fixtures, leasehold improvements other than leasehold estate improvements which qualify under §A(8) of this regulation , vehicles, and maintenance equipment. C. Liabilities Chargeable Against Assets. In any determination of the financial condition of an applicant or provider-sponsored organization, liabilities to be charged against its assets shall include: (1) The amount of its capital stock outstanding, if any; (2) The estimated amount necessary to pay for all accrued benefits to enrollees and all claims, both reported or unreported, incurred on or before the date of the statement, together with estimated costs of adjusting or settling disputed claims; (3) The pro rata amount of premium charges paid by or on behalf of enrollees for any period of coverage beyond the date of the statement; and (4) Its other liabilities, including but not limited to taxes, expenses, and other obligations due or accrued at the date of the statement. D. Earned Charges. (1) Charge Defined. (a) In this section, "charge" means consideration for health services regardless of the name given to the consideration. (b) In this section, "charge" includes an assessment, membership fee, policy fee, survey fee, inspection fee, service fee, or similar fee or charge in consideration for the provider-sponsored organization contract. (2) Earned charges shall include Medicare+Choice contract charges and premium charges, including all determined excess and additional charges, less: (a) Return charges; (b) Charges on canceled contracts; and (c) Unearned charges on contracts in force as shown by the provider-sponsored organization's annual statement. (3) Every provider-sponsored organization shall maintain an unearned charge reserve on all health care contracts in force. This reserve shall be set up as a liability. (4) All prepaid charges shall be considered unearned. E. Standards for Investments. (1) An applicant or provider-sponsored organization may not make or engage in an investment unless the investment has been authorized or ratified by: (a) The board of directors; or (b) A committee of the board of directors charged with the duty of supervising investments. (2) All investments of the applicant or provider-sponsored organization may be held in a custodial account pursuant to COMAR 31.09.04 .

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.07 Deposit of Securities. A. Deposit Required. The Commissioner may not issue or renew a certificate of authority for a provider-sponsored organization unless it has deposited and maintains in trust with the State Treasurer, for the protection of its members or its members and creditors, cash or government securities of the type described in Health-General Article, §19-710, Annotated Code of Maryland, in the market value amount of $100,000. B. Assets. (1) For purposes of determining net worth, the deposit is an admitted asset of the provider-sponsored organization. (2) All income from deposits is an asset of the provider-sponsored organization. C. Withdrawal of Deposit. A provider-sponsored organization that has made a securities deposit may withdraw that deposit, or any part of the deposit, after making a substitute deposit of cash, securities, or any combination of these, or other measures of equal amount and value. D. Approval of Commissioner. Securities shall be approved by the Commissioner before being deposited or substituted. E. Use of Deposit. The deposit shall be used to: (1) Protect the interests of the provider-sponsored organization's enrollees; and (2) Assure continuation of health care services to enrollees of a provider-sponsored organization that is in rehabilitation, conservation, or liquidation.

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.08 Term and Renewal of Certificate of Authority. A. Expiration. Unless previously suspended or revoked, each original and renewal certificate of authority issued to a provider-sponsored organization expires at midnight on the November 30 after its effective date in accordance with Health-General Article, §19-721(a), Annotated Code of Maryland. B. Renewal. On payment of an annual renewal fee of $25 by the provider-sponsored organization before the expiration date of its certificate of authority, its certificate of authority remains in effect until a new certificate of authority is issued or specifically refused in accordance with Health-General Article, §19-721, Annotated Code of Maryland. C. Refusal to Renew. The Commissioner may refuse to renew a certificate of authority in accordance with Health-General Article, §19-722, Annotated Code of Maryland.

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.09 Disciplinary Action. If a provider-sponsored organization violates any provision of Health-General Article, §19-729, Annotated Code of Maryland, the Commissioner may take any action against the provider-sponsored organization that is authorized pursuant to Health-General Article, §19-730, Annotated Code of Maryland.

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.10 Change of Name. A provider-sponsored organization may not: A. Use a name that has not been approved by the Commissioner; or B. Change its name without the prior approval of the Commissioner.

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.11 Termination of Services A. Notice of Intent to Terminate. When a provider-sponsored organization desires to cease offering a service under the contract, the provider-sponsored organization shall provide written notice of the intent to terminate to the Commissioner at least 30 days before ceasing to offer the service. B. Permissible Reasons for Cancellation or Nonrenewal of Enrollment. A provider-sponsored organization may cancel or nonrenew enrollment in the provider-sponsored organization only for the following reasons: (1) Change of the place of residence of the member from the geographical area served by the provider-sponsored organization; (2) Failure of the member to pay any deductible or co-payment charges permitted under a contract; (3) Fraudulent use of the provider-sponsored organization's identification card on the part of the member or the alteration or sale of prescriptions by the member; (4) Failure of the enrollee to pay a premium charge when due; (5) Termination of the contract. (6) Termination of the plan with respect to all individuals in the area in which the enrollee resides; or (7) The enrollee has: (a) Engaged in disruptive behavior as specified in standards under 42 U.S.C. §1395w-21, (b) Lost entitlement to Part A or Part B of Title 42, Chapter 7, Subchapter XVIII of the U.S. Code, or (c) Died.

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.12 Annual Report. A. Required. Each licensed provider-sponsored organization shall file with the Commissioner a report, certified by at least two principal officers, showing its financial condition on the last day of the preceding calendar year. B. Form. The report shall be on the form adopted by the Commissioner. C. Filing Deadline. Unless the time is extended for good cause, a provider-sponsored organization shall file its annual report with the Commissioner on or before the first day of March of each year. D. Supplemental Information. The report shall be supplemented with a description of any changes in the information submitted with the last previous annual report or with the provider-sponsored organization's original application for a certificate of authority. E. Audited Financial Statement. A provider-sponsored organization shall file a certified audited financial statement on or before June 1 of each year. F. Additional Reports. The Commissioner may require additional reports as are deemed necessary and appropriate to enable the Commissioner to carry out the duties of the Commissioner under the law.

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.13 Fiscal Examination. A. Frequency of Examination. The Commissioner may examine the operation of a provider-sponsored organization as often as the Commissioner deems necessary for the protection of the interest of the people of Maryland, but the examinations may not be less frequent than once every 5 years. B. Cost of Examination. (1) The Commissioner shall assess the provider-sponsored organization being examined for the cost of the examination. (2) The provider-sponsored organization shall remit the cost of the examination to the Commissioner.

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.14 General Operations of a Provider-Sponsored Organization. A. Effective Date of Contract. A provider-sponsored organization shall inform the Commissioner of the effective date of its contract. B. Review of Agreements by Commissioner. All signed written agreements, including those defining physicians' services, shall be on file and available for review by the Commissioner at all times in the provider-sponsored organization's central office. C. Duration of Agreements. All agreements shall have a duration of 12 months.

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.15 Insurance — Catastrophic or Back-Up Coverage. A. Insurance Coverage Required. Unless the Commissioner grants an exemption from the requirements of this section, a provider-sponsored organization shall secure insurance coverage to provide: (1) Payments or services required to be made or furnished under the health care contract to those enrollees who are injured or become ill outside the geographic limits served by the provider-sponsored organization; and (2) Reinsurance protection to the provider-sponsored organization in the event of catastrophic or unusual losses that would be in excess of the levels of loss that the provider-sponsored organization assumes in the basis of its calculation of premium charges. B. Term and Renewal of Exemptions. (1) Any exemption to the requirements of §A shall be for a period of 1 year, and may be renewed from year to year after that. (2) The provider-sponsored organization shall make any request for renewal of an exemption at least 90 days before the expiration date of the then-current exemption. C. Reinsurance. With the approval of the Commissioner, a provider-sponsored organization may reinsure any portion or aspect of its operation.

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