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Key: (1) language to be deleted (2) new language

  

                         Laws of Minnesota 1988 

                        CHAPTER 612-H.F.No. 2127 
           An act relating to health maintenance organizations; 
          requiring insolvency insurance policies to be filed; 
          requiring a deposit; creating a net worth requirement; 
          defining admitted assets; imposing investment 
          restrictions; requiring quarterly reports; providing 
          for the inclusion of certain items in provider 
          contracts; regulating rehabilitation and liquidations; 
          providing for alternative coverage for enrollees of an 
          insolvent health maintenance organization; requiring 
          health maintenance organizations to maintain 
          liabilities for unpaid claims; imposing residency 
          requirements for Minnesota comprehensive health 
          association coverage; requiring a report; amending 
          Minnesota Statutes 1986, sections 62D.02, by adding 
          subdivisions; 62D.03, subdivision 4; 62D.041, 
          subdivisions 1, 2, 3, 4, 7, and by adding 
          subdivisions; 62D.05, subdivision 3; 62D.08, by adding 
          a subdivision; 62D.12, subdivision 5, and by adding a 
          subdivision; 62D.14, subdivision 1; 62D.18; 62D.19; 
          62E.02, subdivision 13; and 62E.14, subdivision 1; 
          Minnesota Statutes 1987 Supplement, sections 62D.04, 
          subdivision 1; and 62E.10, subdivision 9; Laws 1988, 
          chapter 434, sections 14 and 21; proposing coding for 
          new law in Minnesota Statutes, chapter 62D; repealing 
          Minnesota Statutes 1986, section 62D.041, subdivisions 
          5, 6, and 8. 
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
    Section 1.  Minnesota Statutes 1986, section 62D.02, is 
amended by adding a subdivision to read: 
    Subd. 15.  "Net worth" means admitted assets, as defined in 
section 15, minus liabilities. 
    Sec. 2.  Minnesota Statutes 1986, section 62D.02, is 
amended by adding a subdivision to read: 
    Subd. 16.  "Affiliate" means a person or entity 
controlling, controlled by, or under common control with the 
person or entity. 
    Sec. 3.  Minnesota Statutes 1986, section 62D.03, 
subdivision 4, is amended to read:  
    Subd. 4.  Each application for a certificate of authority 
shall be verified by an officer or authorized representative of 
the applicant, and shall be in a form prescribed by the 
commissioner of health.  Each application shall include the 
following: 
    (a) a copy of the basic organizational document, if any, of 
the applicant and of each major participating entity; such as 
the articles of incorporation, or other applicable documents, 
and all amendments thereto; 
    (b) a copy of the bylaws, rules and regulations, or similar 
document, if any, and all amendments thereto which regulate the 
conduct of the affairs of the applicant and of each major 
participating entity; 
    (c) a list of the names, addresses, and official positions 
of the following: 
    (1) all members of the board of directors, or governing 
body of the local government unit, and the principal officers 
and shareholders of the applicant organization; and 
    (2) all members of the board of directors, or governing 
body of the local government unit, and the principal officers of 
the major participating entity and each shareholder beneficially 
owning more than ten percent of any voting stock of the major 
participating entity;  
    The commissioner may by rule identify persons included in 
the term "principal officers"; 
    (d) a full disclosure of the extent and nature of any 
contract or financial arrangements between the following:  
    (1) the health maintenance organization and the persons 
listed in clause (c)(1);  
    (2) the health maintenance organization and the persons 
listed in clause (c)(2);  
    (3) each major participating entity and the persons listed 
in clause (c)(1) concerning any financial relationship with the 
health maintenance organization; and 
    (4) each major participating entity and the persons listed 
in clause (c)(2) concerning any financial relationship with the 
health maintenance organization;  
    (e) the name and address of each participating entity and 
the agreed upon duration of each contract or agreement;  
    (f) a copy of the form of each contract binding the 
participating entities and the health maintenance organization.  
Contractual provisions shall be consistent with the purposes of 
sections 62D.01 to 62D.29, in regard to the services to be 
performed under the contract, the manner in which payment for 
services is determined, the nature and extent of 
responsibilities to be retained by the health maintenance 
organization, the nature and extent of risk sharing permissible, 
and contractual termination provisions;  
    (g) a copy of each contract binding major participating 
entities and the health maintenance organization.  Contract 
information filed with the commissioner shall be confidential 
and subject to the provisions of section 13.37, subdivision 1, 
clause (b), upon the request of the health maintenance 
organization.  
    Upon initial filing of each contract, the health 
maintenance organization shall file a separate document 
detailing the projected annual expenses to the major 
participating entity in performing the contract and the 
projected annual revenues received by the entity from the health 
maintenance organization for such performance.  The commissioner 
shall disapprove any contract with a major participating entity 
if the contract will result in an unreasonable expense under 
section 62D.19.  The commissioner shall approve or disapprove a 
contract within 30 days of filing.  
    Within 120 days of the anniversary of the implementation of 
each contract, the health maintenance organization shall file a 
document detailing the actual expenses incurred and reported by 
the major participating entity in performing the contract in the 
proceeding year and the actual revenues received from the health 
maintenance organization by the entity in payment for the 
performance.  
    Contracts implemented prior to April 25, 1984, shall be 
filed within 90 days of April 25, 1984.  These contracts are 
subject to the provisions of section 62D.19, but are not subject 
to the prospective review prescribed by this clause, unless or 
until the terms of the contract are modified.  Commencing with 
the next anniversary of the implementation of each of these 
contracts immediately following filing, the health maintenance 
organization shall, as otherwise required by this subdivision, 
file annual actual expenses and revenues.  
    (h) a statement generally describing the health maintenance 
organization, its health maintenance contracts and separate 
health service contracts, facilities, and personnel, including a 
statement describing the manner in which the applicant proposes 
to provide enrollees with comprehensive health maintenance 
services and separate health services; 
    (i) a copy of the form of each evidence of coverage to be 
issued to the enrollees; 
    (j) a copy of the form of each individual or group health 
maintenance contract and each separate health service contract 
which is to be issued to enrollees or their representatives; 
    (k) financial statements showing the applicant's assets, 
liabilities, and sources of financial support.  If the 
applicant's financial affairs are audited by independent 
certified public accountants, a copy of the applicant's most 
recent certified financial statement may be deemed to satisfy 
this requirement; 
    (l) a description of the proposed method of marketing the 
plan, a schedule of proposed charges, and a financial plan which 
includes a three year projection of the expenses and income and 
other sources of future capital; 
    (m) a statement reasonably describing the geographic area 
or areas to be served and the type or types of enrollees to be 
served; 
    (n) a description of the complaint procedures to be 
utilized as required under section 62D.11; 
    (o) a description of the procedures and programs to be 
implemented to meet the requirements of section 62D.04, 
subdivision 1, clauses (b) and (c) and to monitor the quality of 
health care provided to enrollees; 
    (p) a description of the mechanism by which enrollees will 
be afforded an opportunity to participate in matters of policy 
and operation under section 62D.06; 
    (q) a copy of any agreement between the health maintenance 
organization and an insurer or nonprofit health service 
corporation regarding reinsurance, stop-loss 
coverage, insolvency coverage, or any other type of coverage for 
potential costs of health services, as authorized in section 
sections 62D.04, subdivision 1, clause (f), 62D.05, subdivision 
3, and section 62D.13; and 
    (r) other information as the commissioner of health may 
reasonably require to be provided. 
    Sec. 4.  Minnesota Statutes 1987 Supplement, section 
62D.04, subdivision 1, is amended to read:  
    Subdivision 1.  Upon receipt of an application for a 
certificate of authority, the commissioner of health shall 
determine whether the applicant for a certificate of authority 
has: 
    (a) demonstrated the willingness and potential ability to 
assure that health care services will be provided in such a 
manner as to enhance and assure both the availability and 
accessibility of adequate personnel and facilities; 
    (b) arrangements for an ongoing evaluation of the quality 
of health care; 
    (c) a procedure to develop, compile, evaluate, and report 
statistics relating to the cost of its operations, the pattern 
of utilization of its services, the quality, availability and 
accessibility of its services, and such other matters as may be 
reasonably required by regulation of the commissioner of health; 
    (d) reasonable provisions for emergency and out of area 
health care services; 
    (e) demonstrated that it is financially responsible and may 
reasonably be expected to meet its obligations to enrollees and 
prospective enrollees.  In making this determination, the 
commissioner of health may shall require the amounts of net 
worth and working capital required in section 14, the deposit 
required in section 62D.041, and in addition shall consider: 
    (1) the financial soundness of its arrangements for health 
care services and the proposed schedule of charges used in 
connection therewith; 
    (2) the adequacy of its working capital; 
    (3) arrangements which will guarantee for a reasonable 
period of time the continued availability or payment of the cost 
of health care services in the event of discontinuance of the 
health maintenance organization; and 
    (4) (3) agreements with providers for the provision of 
health care services; and 
    (5) any deposit of cash or securities submitted in 
accordance with section 62D.041;  
    (f) demonstrated that it will assume full financial risk on 
a prospective basis for the provision of comprehensive health 
maintenance services, including hospital care; provided, 
however, that the requirement in this paragraph shall not 
prohibit the following: 
    (1) a health maintenance organization from obtaining 
insurance or making other arrangements (i) for the cost of 
providing to any enrollee comprehensive health maintenance 
services, the aggregate value of which exceeds $5,000 in any 
year, (ii) for the cost of providing comprehensive health care 
services to its members on a nonelective emergency basis, or 
while they are outside the area served by the organization, or 
(iii) for not more than 95 percent of the amount by which the 
health maintenance organization's costs for any of its fiscal 
years exceed 105 percent of its income for such fiscal years; 
and 
    (2) a health maintenance organization from having a 
provision in a group health maintenance contract allowing an 
adjustment of premiums paid based upon the actual health 
services utilization of the enrollees covered under the 
contract, except that at no time during the life of the contract 
shall the contract holder fully self-insure the financial risk 
of health care services delivered under the contract.  Risk 
sharing arrangements shall be subject to the requirements of 
sections 62D.01 to 62D.30; 
    (g) otherwise met the requirements of sections 62D.01 to 
62D.29. 
    Sec. 5.  Minnesota Statutes 1986, section 62D.041, 
subdivision 1, is amended to read:  
    62D.041 [PROTECTION AGAINST IN THE EVENT OF INSOLVENCY.] 
    Subdivision 1.  [DEFINITION.] For the purposes of this 
section, the term "uncovered expenditures" means the costs of 
health care services that are covered by a health maintenance 
organization for which an enrollee would also be liable in the 
event of the organization's insolvency, including out-of-area 
services, referral services, and any other expenditures for 
health care services for which the health maintenance 
organization is at risk and that are not guaranteed, insured, or 
assumed by a person other than the health maintenance 
organization. 
    Sec. 6.  Minnesota Statutes 1986, section 62D.041, 
subdivision 2, is amended to read: 
    Subd. 2.  [REQUIRED DEPOSIT.] Unless otherwise provided in 
this section, Each health maintenance organization shall deposit 
with any organization or trustee acceptable to the commissioner 
through which a custodial or controlled account is utilized, the 
cash, freely alienable securities, or any combination of these 
or other measures that is acceptable to the commissioner in the 
amount set forth required in this section.  If a health 
maintenance organization does not have the required reserves or 
its reserves are not properly computed, operations shall be 
adjusted to correct the condition, according to a written plan 
proposed by the health maintenance organization and approved by 
the commissioner.  If a health maintenance organization does not 
propose measures to correct its reserves or surplus within a 
reasonable time, if a corporation violates the plan which has 
been approved, or if there is evidence that an improper reserve 
or surplus status cannot be corrected within a reasonable time, 
the commissioner of commerce may take action against the 
corporation under chapter 60B The commissioner may allow a 
health maintenance organization's deposit requirement to be met 
by a guaranteeing organization, as defined in section 14, 
subdivision 1, based on the criteria set out in section 14, 
subdivision 5.  
    Sec. 7.  Minnesota Statutes 1986, section 62D.041, 
subdivision 3, is amended to read: 
    Subd. 3.  [AMOUNT FOR BEGINNING ORGANIZATIONS.] The amount 
for an organization that is beginning operation shall be the 
greater of:  (a) five percent of its estimated expenditures for 
health care services for its first year of operation; (b) twice 
its estimated average monthly uncovered expenditures for its 
first year of operation; or (c) $100,000.  
    At the beginning of each succeeding year, unless not 
applicable, the organization shall deposit with the organization 
or trustee, cash, freely alienable securities, or any 
combination of these or other measures acceptable to the 
commissioner in an amount equal to four percent of its estimated 
annual uncovered expenditures for that year.  (a) Organizations 
that obtain a certificate of authority after the effective date 
of this subdivision shall deposit, before receiving a 
certificate of authority, $500,000.  The health maintenance 
organization shall provide the commissioner with evidence of the 
deposit before receiving a certificate of authority. 
    (b) By April 1 of the year following the organization's 
first 12 months of operation under a certificate of authority, 
an organization shall deposit an amount equal to the difference 
between the initial deposit and 33 percent of its uncovered 
expenditures in its first 12 months of operation. 
    (c) By April 1 of subsequent years, an organization shall 
deposit an amount equal to the difference between the amount on 
deposit and 33 percent of its uncovered expenditures in the 
preceding calendar year. 
    Sec. 8.  Minnesota Statutes 1986, section 62D.041, 
subdivision 4, is amended to read: 
    Subd. 4.  [AMOUNT FOR EXISTING ORGANIZATIONS.] Unless not 
applicable, By December 31, 1989, an organization that is in 
operation on August 1, 1984, has received a certificate of 
authority on or before the effective date of this subdivision 
shall make a have on deposit an amount equal to the larger of:  
    (a) one percent of the preceding 12 months' uncovered 
expenditures 33 percent of its uncovered expenditures in the 
preceding calendar year; or 
    (b) $100,000 on the first day of the fiscal year beginning 
six months or more after August 1, 1984 $500,000. 
    In the second fiscal year, if applicable, the amount of the 
additional deposit shall be equal to two percent of its 
estimated annual uncovered expenditures.  In the third year, if 
applicable, the additional deposit shall be equal to three 
percent of its estimated annual uncovered expenditures for that 
year.  In the fourth fiscal year and subsequent years, if 
applicable, the additional deposit shall be equal to four 
percent of its estimated annual uncovered expenditures for each 
year.  Each year's estimate, after the first year of operation, 
shall reasonably reflect the prior year's operating experience 
and delivery arrangements.  
    By April 1 of each subsequent year, an organization shall 
deposit an amount equal to the difference between the amount on 
deposit and 33 percent of its uncovered expenditures in the 
preceding calendar year. 
    Sec. 9.  Minnesota Statutes 1986, section 62D.041, is 
amended by adding a subdivision to read: 
    Subd. 5a.  [WAIVER OF ADDITIONAL DEPOSIT.] In any year when 
the amount determined according to this section is zero or less 
than zero, the commissioner shall not require the organization 
to make any additional deposit. 
    Sec. 10.  Minnesota Statutes 1986, section 62D.041, is 
amended by adding a subdivision to read: 
    Subd. 6a.  [WITHDRAWAL OF DEPOSIT.] If the amount 
previously deposited by the organization under this section 
exceeds the amount required under this section by more than 
$50,000 for a continuous 12-month period, the commissioner shall 
allow the organization to withdraw the portion of the deposit 
that exceeds by more than $50,000 the amount required to be on 
deposit for the organization, unless the commissioner determines 
that release of a portion of the deposit could be hazardous to 
enrollees, creditors, or the general public.  An organization 
shall not apply for the withdrawal more than once in each 
calendar year. 
    Sec. 11.  Minnesota Statutes 1986, section 62D.041, is 
amended by adding a subdivision to read: 
    Subd. 6b.  [EVIDENCE OF DEPOSIT.] An organization shall 
provide the commissioner with evidence of every deposit made on 
or before the date of the deposit. 
    Sec. 12.  Minnesota Statutes 1986, section 62D.041, 
subdivision 7, is amended to read: 
    Subd. 7.  [CONTROL OF OVER DEPOSITS.] All income from 
deposits shall belong to the depositing organizations and shall 
be paid to it as it becomes available.  A health maintenance 
organization that has made a securities deposit may withdraw 
that deposit or any part thereof after making a substitute 
deposit of cash, freely alienable securities, or any combination 
of these or other measures of equal amount and value.  Any 
securities shall be approved by the commissioner before being 
substituted.  
    Sec. 13.  Minnesota Statutes 1986, section 62D.041, is 
amended by adding a subdivision to read: 
    Subd. 9.  [LETTER OF CREDIT.] A health maintenance 
organization may satisfy one-half of its deposit requirement 
through use of a letter of credit issued by a bank authorized to 
do business in this state, provided that: 
    (1) nothing more than a demand for payment is necessary for 
payment; 
    (2) the letter of credit is irrevocable; 
    (3) according to its terms, the letter of credit cannot 
expire without due notice from the issuer and the notice must 
occur at least 60 days before the expiration date and be in the 
form of a written notice to the commissioner; 
    (4) the letter of credit is issued or confirmed by a bank 
which is a member of the federal reserve system; 
    (5) the letter of credit is unconditional, is not 
contingent upon reimbursement to the bank or the bank's ability 
to perfect any lien or security interest, and does not contain 
references to any other agreements, documents, or entities; 
    (6) the letter of credit designates the commissioner as 
beneficiary; and 
    (7) the letter of credit may be drawn upon after insolvency 
of the health maintenance organization. 
    Sec. 14.  [62D.042] [NET WORTH AND WORKING CAPITAL 
REQUIREMENTS.] 
    Subdivision 1.  [DEFINITIONS.] (a) For purposes of this 
section, "guaranteeing organization" means an organization that 
has agreed to make necessary contributions or advancements to 
the health maintenance organization to maintain the health 
maintenance organization's statutorily required net worth. 
    (b) For this section, "working capital" means current 
assets minus current liabilities. 
    Subd. 2.  [BEGINNING ORGANIZATIONS.] (a) Beginning 
organizations shall maintain net worth of at least 8-1/3 percent 
of the sum of all expenses expected to be incurred in the 12 
months following the date the certificate of authority is 
granted, or $1,500,000, whichever is greater. 
    (b) After the first full calendar year of operation, 
organizations shall maintain net worth of at least 8-1/3 percent 
of the sum of all expenses incurred during the most recent 
calendar year, or $1,000,000, whichever is greater. 
    Subd. 3.  [PHASE-IN FOR EXISTING ORGANIZATIONS.] (a) 
Organizations that obtained a certificate of authority on or 
before the effective date of this subdivision have until 
December 31, 1993, to establish a net worth of at least 8-1/3 
percent of the sum of all expenses incurred during the previous 
calendar year, or $1,000,000, whichever is greater. 
    (b) By December 31, 1989, organizations shall have a net 
worth of at least one-fifth of 8-1/3 percent of the sum of all 
expenses incurred during the previous calendar year, or 
$1,000,000, whichever is greater. 
    (c) By December 31, 1990, organizations shall have a net 
worth of at least two-fifths of 8-1/3 percent of the sum of all 
expenses incurred during the previous calendar year, or 
$1,000,000, whichever is greater. 
    (d) By December 31, 1991, organizations shall have a net 
worth of at least three-fifths of 8-1/3 percent of the sum of 
all expenses incurred during the previous calendar year, or 
$1,000,000, whichever is greater. 
    (e) By December 31, 1992, organizations shall have a net 
worth of at least four-fifths of 8-1/3 percent of the sum of all 
expenses incurred during the previous calendar year, or 
$1,000,000, whichever is greater. 
    Subd. 4.  [REDUCTION FOR REINSURANCE.] In calculating 
expenses for purposes of the net worth requirement, a health 
maintenance organization may subtract 90 percent of the cost of 
premiums it pays for insurance coverage specified in section 
62D.04, subdivision 1, clause (f). 
    Subd. 5.  [GUARANTEEING ORGANIZATION.] (a) The commissioner 
may determine that it is in the best interests of an 
organization's enrollees and the public to allow an 
organization's net worth requirement to be satisfied by a 
guaranteeing organization.  The commissioner shall consider the 
net worth of a guaranteeing organization, the number of 
organizations it guarantees, whether it is a governmental entity 
with power to tax, and other factors the commissioner considers 
relevant.  If the commissioner allows a guaranteeing 
organization to satisfy the net worth requirement of more than 
one health maintenance organization, the guaranteeing 
organization must maintain the required net worth of the 
guaranteed health maintenance organizations on an aggregate 
basis. 
    (b) A health maintenance organization that requests the 
commissioner to allow a guaranteeing organization to satisfy its 
net worth or deposit requirement shall provide the commissioner 
with the guaranteeing organization's financial records and other 
relevant information when the request is made and annually by 
April 1, and must continue to do so upon request by the 
commissioner. 
    (c) No provider may be compelled to serve as a guaranteeing 
organization. 
    Subd. 6.  [WORKING CAPITAL.] A health maintenance 
organization must maintain a positive working capital. 
    Subd. 7.  [PLANS OF CORRECTION.] If the working capital or 
net worth is less than the required minimum, operations must be 
adjusted to correct the net worth or working capital, according 
to a written plan proposed by the organization and approved by 
the commissioner.  The commissioner may take action against the 
organization under chapter 60B or under the suspension and 
penalty provisions of sections 62D.15, 62D.16, and 62D.17 if:  
    (1) an organization does not propose a plan to correct its 
working capital or net worth within a reasonable time; 
    (2) an organization violates a plan that has been approved; 
    (3) the commissioner determines that an improper working 
capital or net worth status cannot be corrected within a 
reasonable time; or 
    (4) the commissioner determines that the organization is in 
such financial condition that the transaction of further 
business would be hazardous to its enrollees, its creditors, or 
the public.  
    Sec. 15.  [62D.044] [ADMITTED ASSETS.] 
    "Admitted assets" includes only the investments allowed by 
section 16 and the following: 
    (1) petty cash and other cash funds in the organization's 
principal or official branch office that are under the 
organization's control; 
    (2) immediately withdrawable funds on deposit in demand 
accounts, in a bank or trust company organized and regularly 
examined under the laws of the United States or any state, and 
insured by an agency of the United States government, or like 
funds actually in the principal or official branch office at 
statement date, and, in transit to a bank or trust company with 
authentic deposit credit given before the close of business on 
the fifth bank working day following the statement date; 
    (3) the amount fairly estimated as recoverable on cash 
deposited in a closed bank or trust company, if the assets 
qualified under this section before the suspension of the bank 
or trust company; 
    (4) bills and accounts receivable that are collateralized 
by securities in which the organization is authorized to invest; 
    (5) premiums due from groups or individuals that are not 
more than 90 days past due; 
    (6) amounts due under reinsurance arrangements from 
insurance companies authorized to do business in this state; 
    (7) tax refunds due from the United States or this state; 
    (8) interest accrued on mortgage loans not exceeding in 
aggregate one year's total due and accrued interest on an 
individual loan; 
    (9) the rents due to the organization on real and personal 
property, directly or beneficially owned, not exceeding the 
amount of one year's total due and accrued rent on each 
individual property; 
    (10) interest or rents accrued on conditional sales 
agreements, security interests, chattel mortgages, and real or 
personal property under lease to other corporations that do not 
exceed the amount of one year's total due and accrued interest 
or rent on an individual investment; 
    (11) the fixed required interest due and accrued on bonds 
and other evidences of indebtedness that are not in default; 
    (12) dividends receivable on shares of stock, provided that 
the market price for valuation purposes does not include the 
value of the dividend; 
    (13) the interest on dividends due and payable, but not 
credited, on deposits in banks and trust companies or on 
accounts with savings and loan associations; 
    (14) interest accrued on secured loans that do not exceed 
the amount of one year's interest on any loan; 
    (15) interest accrued on tax anticipation warrants; 
    (16) the amortized value of electronic computer or data 
processing machines or systems purchased for use in the business 
of the organization, including software purchased and developed 
specifically for the organization's use; 
    (17) the cost of furniture, equipment, and medical 
equipment, less accumulated depreciation thereon, and medical 
and pharmaceutical supplies that are used to deliver health care 
and are under the organization's control, provided the assets do 
not exceed 30 percent of admitted assets; 
    (18) amounts currently due from an affiliate that has 
liquid assets with which to pay the balance and maintain its 
accounts on a current basis.  Any amount outstanding more than 
three months is not current; 
    (19) amounts on deposit under section 62D.041; and 
    (20) accounts receivable from participating health care 
providers that are not more than 60 days past due. 
    Sec. 16.  [62D.045] [INVESTMENT RESTRICTIONS.] 
    Subdivision 1.  [RESTRICTIONS.] Funds of a health 
maintenance organization shall be invested only in securities 
and property designated by law for investment by domestic life 
insurance companies, except that money may be used to purchase 
real estate, including leasehold estates and leasehold 
improvements, for the convenient accommodation of the 
organization's business operations, including the home office, 
branch offices, medical facilities, and field office operations, 
on the following conditions: 
    (1) a parcel of real estate acquired under this subdivision 
may include excess space for rent to others if it is reasonably 
anticipated that the excess will be required by the organization 
for expansion or if the excess is reasonably required in order 
to have one or more buildings that will function as an economic 
unit; 
    (2) the real estate may be subject to a mortgage; and 
    (3) the purchase price of the asset, including capitalized 
permanent improvements, less depreciation spread evenly over the 
life of the property or less depreciation computed on any basis 
permitted under the Internal Revenue Code and its regulations, 
or the organization's equity, plus all encumbrances on the real 
estate owned by a company under this subdivision, whichever is 
greater, does not exceed 20 percent of its admitted assets, 
except if permitted by the commissioner upon a finding that the 
percentage of the health maintenance organization's admitted 
assets is insufficient to provide convenient accommodation for 
the organization's business.  However, a health maintenance 
organization that directly provides medical services may invest 
an additional 20 percent of its admitted assets in real estate, 
not requiring the permission of the commissioner. 
    Subd. 2.  [AUTHORIZATION REQUIRED.] A health maintenance 
organization shall not make or engage in a loan or investment 
unless the loan or investment has been authorized or ratified by 
the board of directors or by a committee supervising investments 
and loans. 
    Subd. 3.  [LIMITS ON COMMISSIONS.] A health maintenance 
organization shall not pay a commission or brokerage for the 
purchase or sale of real or personal property that exceeds usual 
and customary commissions or brokerage at the time and place of 
the purchases or sales.  Information regarding payments of 
commissions and brokerage must be maintained by the health 
maintenance organization. 
    Subd. 4.  [OFFICER'S CONFLICT OF INTEREST.] A health 
maintenance organization shall not knowingly, directly or 
indirectly, invest in or loan upon any real or personal 
property, in which any principal officer or director of the 
organization has a financial interest.  An organization shall 
not make a loan to a principal officer or director of the 
organization. 
     Subd. 5.  [EXEMPTION.] This section shall not apply to a 
health maintenance organization which has a city or county as a 
guaranteeing organization. 
    Sec. 17.  Minnesota Statutes 1986, section 62D.05, 
subdivision 3, is amended to read:  
    Subd. 3.  A health maintenance organization may contract 
with providers of health care services to render the services 
the health maintenance organization has promised to provide 
under the terms of its health maintenance contracts, may, 
subject to section 62D.12, subdivision 11, enter into separate 
prepaid dental contracts, or other separate health service 
contracts, may, subject to the limitations of section 62D.04, 
subdivision 1, clause (f), contract with insurance companies and 
nonprofit health service plan corporations for insurance, 
indemnity or reimbursement of its cost of providing health care 
services for enrollees or against the risks incurred by the 
health maintenance organization, may contract with insurance 
companies and nonprofit health service plan corporations for 
insolvency insurance coverage, and may contract with insurance 
companies and nonprofit health service plan corporations to 
insure or cover the enrollees' costs and expenses in the health 
maintenance organization, including the customary prepayment 
amount and any copayment obligations.  
    Sec. 18.  Minnesota Statutes 1986, section 62D.08, is 
amended by adding a subdivision to read: 
    Subd. 6.  A health maintenance organization shall submit to 
the commissioner unaudited financial statements of the 
organization on a quarterly basis on forms prescribed by the 
commissioner.  The statements are due 30 days after the end of 
each quarter and shall be maintained as nonpublic data, as 
defined by section 13.02, subdivision 9. 
    Sec. 19.  Minnesota Statutes 1986, section 62D.12, 
subdivision 5, is amended to read:  
    Subd. 5.  The providers under agreement with a health 
maintenance organization to provide health care services and the 
health maintenance organization shall not have recourse against 
enrollees or persons acting on their behalf for amounts above 
those specified in the evidence of coverage as copayments for 
health care services.  The health maintenance organization shall 
not have recourse against enrollees or persons acting on their 
behalf for amounts above those specified in the evidence of 
coverage as the periodic prepayment, or copayment, for health 
care services.  This subdivision applies but is not limited to 
the following events: 
    (1) nonpayment by the health maintenance organization; 
    (2) insolvency of the health maintenance organization; and 
    (3) breach of the agreement between the health maintenance 
organization and the provider. 
     This subdivision does not limit a provider's ability to 
seek payment from any person other than the enrollee, the 
enrollee's guardian or conservator, the enrollee's immediate 
family members, or the enrollee's legal representative in the 
event of nonpayment by the health maintenance organization. 
    Sec. 20.  Minnesota Statutes 1986, section 62D.12, is 
amended by adding a subdivision to read: 
    Subd. 9b.  A health maintenance organization shall not 
enter into an agreement with a hospital in which the hospital 
agrees to assume the financial risk for services provided by 
other facilities or providers not owned, operated, or otherwise 
subject to the control of the hospital assuming the financial 
risk. 
    Sec. 21.  [62D.123] [PROVIDER CONTRACTS.] 
    Subdivision 1.  [PROVIDER AGREEMENT.] Except for an 
employment agreement between a provider and health maintenance 
organization, an agreement to provide health care services 
between a provider and a health maintenance organization entered 
into or renewed after the effective date of this section must 
contain the following provision: 
    PROVIDER AGREES NOT TO BILL, CHARGE, COLLECT A DEPOSIT 
FROM, SEEK REMUNERATION FROM, OR HAVE ANY RECOURSE AGAINST AN 
ENROLLEE OR PERSONS ACTING ON THEIR BEHALF FOR SERVICES PROVIDED 
UNDER THIS AGREEMENT.  THIS PROVISION APPLIES TO BUT IS NOT 
LIMITED TO THE FOLLOWING EVENTS:  (1) NONPAYMENT BY THE HEALTH 
MAINTENANCE ORGANIZATION OR (2) BREACH OF THIS AGREEMENT.  THIS 
PROVISION DOES NOT PROHIBIT THE PROVIDER FROM COLLECTING 
COPAYMENTS OR FEES FOR UNCOVERED SERVICES.  
    THIS PROVISION SURVIVES THE TERMINATION OF THIS AGREEMENT 
FOR AUTHORIZED SERVICES PROVIDED BEFORE THIS AGREEMENT 
TERMINATES, REGARDLESS OF THE REASON FOR TERMINATION.  THIS 
PROVISION IS FOR THE BENEFIT OF THE HEALTH MAINTENANCE 
ORGANIZATION ENROLLEES.  THIS PROVISION DOES NOT APPLY TO 
SERVICES PROVIDED AFTER THIS AGREEMENT TERMINATES. 
    THIS PROVISION SUPERSEDES ANY CONTRARY ORAL OR WRITTEN 
AGREEMENT EXISTING NOW OR ENTERED INTO IN THE FUTURE BETWEEN THE 
PROVIDER AND THE ENROLLEE OR PERSONS ACTING ON THEIR BEHALF 
REGARDING LIABILITY FOR PAYMENT FOR SERVICES PROVIDED UNDER THIS 
AGREEMENT. 
    Subd. 2.  [COOPERATION REQUIRED.] An agreement to provide 
health care services between a provider and a health maintenance 
organization must require the provider to cooperate with and 
participate in the health maintenance organization's quality 
assurance program, dispute resolution procedure, and utilization 
review program. 
    Subd. 3.  [NOTICE OF TERMINATION.] An agreement to provide 
health care services between a provider and a health maintenance 
organization must require that if the provider terminates the 
agreement, without cause, the provider shall give the 
organization 120 days' advance notice of termination. 
    Subd. 4.  [LATE PAYMENTS.] If a health maintenance 
organization's payments to a provider are delayed beyond the 
payment date in the contract, the provider may notify the 
commissioner who shall consider that information in assessing 
the financial solvency of the health maintenance organization. 
    Sec. 22.  Minnesota Statutes 1986, section 62D.14, 
subdivision 1, is amended to read:  
    Subdivision 1.  The commissioner of health may make an 
examination of the affairs of any health maintenance 
organization and its contracts, agreements, or other 
arrangements with any participating entity as often as the 
commissioner of health deems necessary for the protection of the 
interests of the people of this state, but not less frequently 
than once every three years, provided that.  Examinations of 
participating entities pursuant to this subdivision shall be 
limited to their dealings with the health maintenance 
organization and its enrollees, except that examinations of 
major participating entities may include inspection of the 
entity's financial statements kept in the ordinary course of 
business.  The commissioner may require major participating 
entities to submit the financial statements directly to the 
commissioner.  Financial statements of major participating 
entities are subject to the provisions of section 13.37, 
subdivision 1, clause (b), upon request of the major 
participating entity or the health maintenance organization with 
which it contracts. 
    Sec. 23.  Minnesota Statutes 1986, section 62D.18, is 
amended to read:  
    62D.18 [REHABILITATION, OR LIQUIDATION, OR CONSERVATION OF 
HEALTH MAINTENANCE ORGANIZATION.] 
    Subdivision 1.  [COMMISSIONER OF HEALTH; ORDER.] The 
commissioner of commerce health may independently, or shall at 
the request of the commissioner of health, order the 
rehabilitation, or liquidation or conservation of health 
maintenance organizations.  The rehabilitation, or liquidation 
or conservation of a health maintenance organization shall 
be deemed to be the rehabilitation, liquidation or conservation 
of an insurance company and shall be conducted under the 
supervision of the commissioner of commerce and pursuant to 
under the procedures in chapter 60B, except to the extent that 
the nature of health maintenance organizations render such 
law renders the procedures clearly inappropriate and as provided 
in subdivisions 2 to 7. 
    Subd. 2.  [INSOLVENCY; GROUNDS FOR REHABILITATION; 
LIQUIDATION.] Insolvency, as grounds for rehabilitation or 
liquidation of a health maintenance organization, exists when a 
health maintenance organization cannot be expected to satisfy 
its financial obligations when the obligations become due or 
when the health maintenance organization has failed to correct 
within the time required by the commissioner deficiencies due to 
net worth or working capital below the required amount. 
    Subd. 3.  [PRIORITY OF CLAIMS.] To determine the priority 
of distribution of general assets, claims of enrollees have the 
same priority as claimants under policies or contracts of 
coverage for losses established under section 60B.44, 
subdivision 4.  If an enrollee is liable to any provider for 
covered services provided under the health plan, that liability 
has the status of an enrollee claim for distribution of general 
assets, whether the enrollee or the provider files the claim.  
Claims of providers under agreement with the health maintenance 
organization for services rendered have priority after enrollee 
claims under section 60B.44, subdivision 4. 
    Subd. 4.  [POWERS OF REHABILITATOR.] The powers of the 
rehabilitator include, subject to the approval of the court the 
power to change premium rates, without the notice requirements 
of section 62D.07, and the power to amend the terms of provider 
contracts, and of contracts with participating entities for the 
provision of administrative, financial, or management services, 
relating to reimbursement and termination, considering the 
interests of providers and other contracting participating 
entities and the continued viability of the health plan. 
    If the court approves a contract amendment that diminishes 
the compensation of a provider or of a participating entity 
providing administrative, financial, or management services to 
the health maintenance organization, the amendment may not be 
effective for more than 60 days and shall not be renewed or 
extended. 
    Subd. 5.  [POWERS OF LIQUIDATOR.] The power to transfer 
coverage obligations under section 60B.25, clause (8), includes 
the power to transfer coverage obligations to a solvent health 
maintenance organization and to assign the provider contracts of 
the insolvent health maintenance organization to an assuming 
health maintenance organization. 
    Subd. 6.  [SPECIAL EXAMINER.] The commissioner as 
rehabilitator shall make every reasonable effort to employ a 
senior executive from a successful health maintenance 
organization to serve as special examiner to rehabilitate the 
health maintenance organization, provided that the individual 
does not have a conflict of interest.  The special examiner 
shall have all the powers of the rehabilitator granted under 
this section and section 60B.17. 
    Subd. 7.  [EXAMINATION ACCOUNT.] The commissioner of health 
shall assess against a health maintenance organization not yet 
in rehabilitation or liquidation a fee sufficient to cover the 
costs of a special examination.  The fee must be deposited in an 
examination account.  Money in the account is appropriated to 
the commissioner of health to pay for the examinations.  If the 
money in the account is insufficient to pay the initial costs of 
examinations, the commissioner may use other money appropriated 
to the commissioner, provided the other appropriation is 
reimbursed from the examination account when it contains 
sufficient money.  Money from the examination account must be 
used to pay per diem salaries and expenses of special examiners, 
including meals, lodging, laundry, transportation, and mileage.  
The salary of regular employees of the health department must 
not be paid out of the account. 
    Sec. 24.  [62D.181] [INSOLVENCY; MCHA ALTERNATIVE 
COVERAGE.] 
    Subdivision 1.  [DEFINITION.] "Association" means the 
Minnesota comprehensive health association created in section 
62E.10. 
    Subd. 2.  [ELIGIBLE INDIVIDUALS.] An individual is eligible 
for alternative coverage under this section if: 
    (1) the individual had individual health coverage through a 
health maintenance organization, the coverage is no longer 
available due to the insolvency of the health maintenance 
organization, and the individual has not obtained alternative 
coverage; or 
    (2) the individual had group health coverage through a 
health maintenance organization, the coverage is no longer 
available due to the insolvency of the health maintenance 
organization and the individual has not obtained alternative 
coverage. 
    Subd. 3.  [APPLICATION AND ISSUANCE.] If a health 
maintenance organization will be liquidated, individuals 
eligible for alternative coverage under subdivision 2 may apply 
to the association to obtain alternative coverage.  Upon 
receiving an application and evidence that the applicant was 
enrolled in the health maintenance organization at the time of 
an order for liquidation, the association shall issue policies 
to eligible individuals, without the limitation on preexisting 
conditions described in section 62E.14, subdivision 3. 
    Subd. 4.  [COVERAGE.] Alternative coverage issued under 
this section must be at least a number two qualified plan, as 
described in section 62E.06, subdivision 2, or for individuals 
over age 65, a medicare supplement 2 plan, as described in 
section 62A.34. 
    Subd. 5.  [PREMIUM.] The premium for alternative coverage 
issued under this section must not exceed 80 percent of the 
premium for the comparable coverage offered by the association. 
    Subd. 6.  [DURATION.] The duration of alternative coverage 
issued under this section is: 
    (1) for individuals eligible under subdivision 2, clause 
(1), 90 days; and 
    (2) for individuals eligible under subdivision 2, clause 
(2), 90 days or the length of time remaining in the group 
contract with the insolvent health maintenance organization, 
whichever is greater. 
    Subd. 7.  [REPLACEMENT COVERAGE; LIMITATIONS.] The 
association is not obligated to offer replacement coverage under 
chapter 62D or conversion coverage under section 62E.16 at the 
end of the periods specified in subdivision 6.  Any continuation 
obligation arising under chapter 62A or 62D will cease at the 
end of the periods specified in subdivision 6. 
    Subd. 8.  [CLAIMS EXPENSES EXCEEDING PREMIUMS.] Claims 
expenses resulting from the operation of this section which 
exceed premiums received shall be borne by contributing members 
of the association in accordance with section 62E.11, 
subdivision 5. 
    Subd. 9.  [COORDINATION OF POLICIES.] If an insolvent 
health maintenance organization has insolvency insurance 
coverage at the time of an order for liquidation, the 
association may coordinate the benefits of the policy issued 
under this section with those of the insolvency insurance policy 
available to the enrollees.  The premium level for the combined 
association policy and the insolvency insurance policy may not 
exceed those described in subdivision 5 of this section. 
    Sec. 25.  [62D.182] [LIABILITIES.] 
    Every health maintenance organization shall maintain 
liabilities estimated in the aggregate to be sufficient to pay 
all reported or unreported claims incurred that are unpaid and 
for which the organization is liable.  Liabilities are computed 
under rules adopted by the commissioner. 
    Sec. 26.  Minnesota Statutes 1986, section 62D.19, is 
amended to read:  
    62D.19 [UNREASONABLE EXPENSES.] 
    No health maintenance organization shall incur or pay for 
any expense of any nature which is unreasonably high in relation 
to the value of the service or goods provided.  The commissioner 
of health shall implement and enforce this section by rules 
adopted under this section. 
    In an effort to achieve the stated purposes of sections 
62D.01 to 62D.29; in order to safeguard the underlying nonprofit 
status of health maintenance organizations; and to ensure that 
the payment of health maintenance organization money to major 
participating entities results in a corresponding benefit to the 
health maintenance organization and its enrollees, when 
determining whether an organization has incurred an unreasonable 
expense in relation to a major participating entity, due 
consideration shall be given to, in addition to any other 
appropriate factors, whether the officers and trustees of the 
health maintenance organization have acted with good faith and 
in the best interests of the health maintenance organization in 
entering into, and performing under, a contract under which the 
health maintenance organization has incurred an expense.  The 
commissioner has standing to sue, on behalf of a health 
maintenance organization, officers or trustees of the health 
maintenance organization who have breached their fiduciary duty 
in entering into and performing such contracts. 
     Sec. 27.  Minnesota Statutes 1986, section 62E.02, 
subdivision 13, is amended to read:  
    Subd. 13.  "Eligible person" means an individual who is 
currently and has been a resident of Minnesota for the six 
months immediately preceding the date of receipt by the 
association or its writing carrier of a completed certificate of 
eligibility and who meets the enrollment requirements of section 
62E.14. 
    Sec. 28.  Minnesota Statutes 1987 Supplement, section 
62E.10, subdivision 9, is amended to read:  
    Subd. 9.  [EXPERIMENTAL DELIVERY METHOD.] The association 
may petition the commissioner of commerce for a waiver to allow 
the experimental use of alternative means of health care 
delivery.  The commissioner may approve the use of the 
alternative means the commissioner considers appropriate.  The 
commissioner may waive any of the requirements of this chapter 
and chapters 60A, 62A, and 62D in granting the waiver.  The 
commissioner may also grant to the association any additional 
powers as are necessary to facilitate the specific waiver, 
including the power to implement a provider payment schedule.  
    This subdivision is effective until August 1, 1989 1990. 
    The commissioner of commerce in consultation with the 
governor's commission on health plan regulatory reform shall 
study and report to the legislature by January 15, 1989, on the 
current means utilized to finance the annual operating deficits 
incurred under the association.  In conducting the study, the 
commissioner shall analyze any negative financial impacts which 
the current deficits are having on the contributing members of 
the association and recommend alternative sources of funding or 
other approaches which could be utilized to finance the 
operating deficit.  The study shall also address the current 
association funding inequities between employers which 
self-insure for employee health benefit coverage and those 
employers which have health coverage subject to state regulation.
    Sec. 29.  Minnesota Statutes 1986, section 62E.14, 
subdivision 1, is amended to read:  
    Subdivision 1.  [CERTIFICATE, CONTENTS.] The comprehensive 
health insurance plan shall be open for enrollment by eligible 
persons.  An eligible person shall enroll by submission of a 
certificate of eligibility to the writing carrier.  The 
certificate shall provide the following: 
    (a) Name, address, age, list of residences for the 
immediately preceding six months and length of time at current 
residence of the applicant; 
    (b) Name, address, and age of spouse and children if any, 
if they are to be insured; 
    (c) Evidence of rejection, a requirement of restrictive 
riders, a rate up, or a preexisting conditions limitation on a 
qualified plan, the effect of which is to substantially reduce 
coverage from that received by a person considered a standard 
risk, by at least one association members within six months of 
the date of the certificate, or other eligibility requirements 
adopted by rule by the commissioner which are not inconsistent 
with this chapter and which evidence that a person is unable to 
obtain coverage substantially similar to that which may be 
obtained by a person who is considered a standard risk; 
    (d) Evidence that the applicant meets the eligibility 
requirements of section 62E.081, subdivision 1; and 
    (e) A designation of the coverage desired. 
    An eligible person may not purchase more than one policy 
from the state plan.  Upon ceasing to be a resident of Minnesota 
a person is no longer eligible to purchase or renew coverage 
under the state plan. 
    Sec. 30.  Laws 1988, chapter 434, section 14, is amended to 
read: 
    Sec. 14.  [62D.122] [MEDIATION.] 
    When current parties to a health maintenance organization 
contract between providers of health care services and the 
health maintenance organization believe they will be unable to 
reach agreement on the terms of renewal or maintenance of the 
agreement, either party may request the commissioner of health 
to order that the dispute be submitted to mediation.  The 
parties to the dispute shall enter mediation upon the order of 
the commissioner of health.  Whether or not a request for 
mediation from one of the parties has been received, the 
commissioner shall order mediation if failure to reach agreement 
would significantly impair access to health care services on the 
part of current enrollees of that health maintenance 
organization.  The commissioner shall be a participant in the 
mediation.  In determining whether access to health care 
services for current enrollees will be significantly impaired, 
the commissioner shall consider: 
    (1) the number of enrollees affected, 
    (2) the ability of the plan to make alternate arrangements 
with other participating providers for the provision of health 
care services to the affected enrollees, 
    (3) the availability of nonparticipating providers who may 
become participating providers for those with whom the health 
maintenance organization is in dispute, 
    (4) the time remaining until termination of the provider 
contract, and 
    (5) whether failure to resolve the dispute may establish a 
precedent for similar disputes in other parts of the state or 
might impede competition among health plans. 
    During the period in which the dispute is in mediation, no 
action to terminate provider or enrollee contracts may be taken 
by either party.  Participation in mediation shall be required 
of all parties for a period of not more than 30 days.  Notice of 
termination of provider agreements, as required under section 5, 
shall take effect no earlier than 31 days after the first day of 
mediation under this section. 
    When mediation is ordered by the commissioner, arrangements 
for mediation shall be made through either the office of dispute 
resolution in the state planning agency, or the office of 
administrative hearings. 
    Costs of the mediation shall be borne equally by the health 
maintenance organization and the health care providers unless 
otherwise agreed to by the parties.  The office of 
administrative hearings shall establish rates for mediation 
services comparable to those charged by mediators listed with 
the office of dispute resolution. 
    The mediator shall not have authority to impose a 
settlement or otherwise bind a participant to a nonvoluntary 
resolution of the dispute; however, any agreement reached as a 
result of the mediation shall be enforceable. 
    Except as otherwise provided under chapter 13 and sections 
62D.03 and 62D.14, the commissioner shall make public the 
results of any mediation agreement. 
    Sec. 31.  Laws 1988, chapter 434, section 21, is amended to 
read:  
    Sec. 21.  Minnesota Statutes 1986, section 62E.14, is 
amended by adding a subdivision to read: 
    Subd. 6.  A Minnesota resident who holds an individual 
health maintenance contract, individual nonprofit health service 
corporation contract, or an individual insurance policy 
previously approved by the commissioners of health or commerce, 
may enroll in the comprehensive health insurance plan with a 
waiver of the preexisting condition as described in subdivision 
3, without interruption in coverage, provided (1) no replacement 
coverage that meets the requirements of section 13 was offered 
by the contributing member, and (2) the policy or contract has 
been terminated for reasons other than (a) nonpayment of 
premium; (b) failure to make copayments required by the health 
care plan; (c) moving out of the area served; or (d) a 
materially false statement or misrepresentation by the enrollee 
in the application for membership; and, provided further, that 
the option to enroll in the plan is exercised within 30 days of 
termination of the existing policy or contract. 
    Coverage allowed under this section is effective on the 
date of termination, when the contract or policy is terminated 
and the enrollee has completed the proper application and paid 
the required premium or fee. 
    Expenses incurred from the preexisting conditions of 
individuals enrolled in the state plan under this subdivision 
must be paid by the contributing member canceling coverage as 
set forth in section 62E.11, subdivision 10. 
    The application must include evidence of termination of the 
existing policy or certificate as required in subdivision 1. 
    Sec. 32.  [REPEALER.] 
    Minnesota Statutes 1986, section 62D.041, subdivisions 5, 
6, and 8, are repealed. 
    Sec. 33.  [EFFECTIVE DATE.] 
    Sections 1 to 15 and 17 to 32 are effective the day 
following final enactment.  Section 16 is effective January 1, 
1990. 
    Approved April 24, 1988

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