INSURANCE

DEPARTMENT OF BANKING AND INSURANCE

DIVISION OF INSURANCE

Organized Delivery Systems

Proposed New Rules: N.J.A.C. 11:22-4

Authorized By: Donald Bryan, Acting Commissioner, Department of Banking and Insurance

Authority: N.J.S.A. 17:1-8.1, 17:1-15e and 17:48H-1 et seq.

Calendar Reference: See Summary below for explanation of exception to calendar requirement.

Proposal Number: PRN 2002 Ė 18

Submit comments by March 8, 2001 to:

Karen Garfing, Assistant Commissioner
Regulatory Affairs
Department of Banking and Insurance
20 West State Street
P.O. Box 325
Trenton, NJ 08625-0325

Fax No.: 609-292-0896

E-mail: legsregs@dobi.state.nj.us

The agency proposal follows:

Summary

N.J.S.A. 17:48H-1 et seq., enacted January 18, 2000, provides for the licensure of "organized delivery systems" ("ODS") that assume "financial risk," as those terms are defined in N.J.S.A. 17:48H-1. Generally, an ODS is an entity that contracts with a carrier, directly or indirectly, to provide the comprehensive services or benefits under the carrierís benefits plan on behalf of the carrier, or to provide limited health care services that the carrier elects to subcontract as a separate category of benefits or services apart from its benefits under its comprehensive benefits plan. The term "carrier" includes insurers, hospital service corporations, medical service corporations, health service corporations, and health maintenance organizations, authorized to transact business in this State. Pursuant to the statute, an ODS that assumes financial risk must file an application with the Department of Banking and Insurance ("Department") and the Department of Health and Senior Services ("DHSS") to become licensed.

The statute sets forth various requirements with respect to approval of an ODS that is required to be licensed. These include: net worth requirements; deposit requirements; reporting requirements; and contract requirements. All standard forms of provider agreements, quality assurance programs, and utilization management programs to be used by the ODS are subject to review by DHSS to determine whether such forms are acceptable and otherwise comply with the requirements at N.J.S.A. 17:48H-13b.

N.J.S.A. 17:48H-11 also provides that an ODS may be exempted from licensing requirements if the Department determines that the financial risk of the ODS is de minimis in that its exposure to financial loss is limited in amount or likelihood to the degree that it reasonably will not prevent the ODS from satisfying the liabilities imposed under the terms of its contracts.

Moreover, any ODS that is not subject to licensure because it does not assume financial risk or only assumes a de minimis risk, must become certified by DHSS pursuant to N.J.S.A. 17:48H-1 through 10. (Procedures for certification by DHSS will be set forth separately by DHSS in its own rules.)

Thus, the statute provides that where a carrier has transferred various obligations to provide services or benefits to another entity, the entity assuming that risk should be evaluated to determine whether it is in a position to fulfill its obligations, the persons to perform the services are properly qualified, and the ODS has demonstrated an ability to ensure that services will be provided so as to assure the availability and accessibility of the services.

The Department therefore proposes these new rules to implement N.J.S.A. 17:48H-1 et seq., specifically N.J.S.A. 17:48H-11 et seq., to set forth the filing and operation requirements for an entity to be licensed as an ODS pursuant to that statute. The areas addressed by the proposed rules include: application procedures; examinations; net worth, deposit and bond requirements; annual reporting requirements; and suspension or revocation of an ODSí license. Many of the procedures in the proposed rules track the provisions in the statute. The Department, however, has clarified in the proposed rules, among other things, what constitutes a "financial risk." While "financial risk" is defined in N.J.S.A. 17:48H-1, the proposed rules clarify that a financial risk shall exist, if, under an agreement between the ODS and the carrier, the financial obligations of the ODS for payment of benefits or providing treatment or services does or potentially may exceed any payments that may be received from the carrier. Thus, where an ODS essentially acts as an intermediary or "facilitator" between the carrier and the providers, and the ODS has no obligation to make payments that exceed, or potentially may exceed, payments it received from the carrier, the ODS shall not be deemed to have assumed financial risk. If, however, the contract provides that the ODSí obligations may exceed payments received from the carrier (for example, the carrier provides a payment to an ODS for mental health services of "x" dollars per person, and the ODS has the obligation to pay providers on the basis of services provided, even if those payments exceed amounts received from the carrier), the ODS shall be deemed to have assumed a financial risk and thus be subject to licensure.

In sum, the proposed new rules implement N.J.S.A. 17:48H-1 et seq. with respect to licensure of an ODS to help ensure that the entity possesses the financial strength and expertise to provide the services for which it has contracted.

Proposed N.J.A.C. 11:22-4.1 sets forth the purpose and scope of the proposed new rules.

Proposed N.J.A.C. 11:22-4.2 sets forth the definitions of terms used throughout the subchapter.

Proposed N.J.A.C. 11:22-4.3 sets forth the requirement for licensure, consistent with N.J.S.A. 17:48H-11.

Proposed N.J.A.C. 11:22-4.4 sets forth the licensing application procedures.

Proposed N.J.A.C. 11:22-4.5 sets forth the application review procedures.

Proposed N.J.A.C. 11:22-4.6 provides for notification to the Department of any changes or modifications in any document filed with the Department or DHSS, and provides that an ODS must file a copy of any contract with a carrier for approval prior to entering into such contract, and sets forth requirements for such contracts.

Proposed N.J.A.C. 11:22-4.7 provides for the examination of a licensed ODS by the Department and provides that the reasonable expenses of the examination shall be borne by the licensed ODS being examined, consistent with N.J.S.A. 17:48H-17.

Proposed N.J.A.C. 11:22-4.8 sets forth requirements for net worth, deposits, and bonds.

Proposed N.J.A.C. 11:22-4.9 sets forth requirements for the filing of financial reports.

The annual report must be completed as prescribed by the National Association of Insurance Commissioners (NAIC) Health Annual Statement Instructions and completed on a statutory accounting principles basis, in accordance with the NAIC Accounting Practices and Procedures Manual. Both the NAIC documents are incorporated by reference into this section. The NAIC Health Annual Statement instructions are utilized to complete the annual statement and supporting schedules and exhibits that disclose the financial condition of the segregated accounts. The NAIC Accounting Practices and Procedures Manual sets forth the NAIC codification of more than 80 statements of statutory accounting principles, and provides direction for completion of financial statements on a statutory accounting basis.

Proposed N.J.A.C. 11:22-4.10 provides procedures for the suspension and revocation of an ODSí license, consistent with N.J.S.A. 17:48H-23.

Proposed N.J.A.C. 11:22-4.11 provides that a licensed ODS shall maintain insurance to cover the expenses paid for continued benefits following a determination of insolvency, or make other arrangements to ensure that benefits are continued for the period determined in the insolvency plan, consistent with N.J.S.A. 17:48H-25.

Proposed N.J.A.C. 11:22-4.12 sets forth penalties for violations of the subchapter.

A 60-day comment period is provided and, therefore, pursuant to N.J.A.C. 1:30-3.3(a)5, the proposal is not subject to the provisions of N.J.A.C. 1:30-3.1 and 3.2 governing rulemaking calendars.

Social Impact

The proposed new rules establish a regulatory framework for the licensing, operation, and monitoring of an ODS that assumes financial risk to ensure compliance with N.J.S.A. 17:48H-1, et seq. Accordingly, the proposed new rules implement the intent of the Legislature as set forth in N.J.S.A. 17:48H-1 et seq. with respect to an ODS that assumes financial risk to ensure that such entity possesses the financial strength and expertise to provide the benefits or services for which it has contracted to provide. This, in turn, benefits those subscribers and insureds whose services are provided by ODS, as well as providers, the carriers with which the ODS contracts, and the public generally.

Economic Impact

An ODS subject to licensure shall be required to bear all costs associated with application to become licensed, including application fees, as well as all costs associated with continuing to operate in compliance with these proposed new rules and N.J.S.A. 17:48H-1 et seq., including costs of periodic examinations pursuant to N.J.S.A. 17:48H-17. Many of these expenses, however, are imposed by the statute. Moreover, the Department believes that any ODS seeking to assume financial risk should be in a position to bear the costs imposed, which the Department believes are reasonable, necessary and appropriate to help ensure that the entity possesses the financial strength and soundness to fulfill its obligations. The Department believes that it is necessary, appropriate and fulfills the intent of the Legislature, as expressed in N.J.S.A. 17:48H-1 et seq., to ensure the financial strength of these entities, to avoid significant disruptions to subscribers, insureds, providers, and the market generally that could result if an entity that has assumed risk from a carrier to provide services or benefits becomes insolvent or is otherwise unable to fulfill its contractual obligations. Accordingly, the proposed new rules, by creating a regulatory framework that seeks to avoid these disruptions, ultimately should have a positive economic impact on the health insurance market and the public generally.

Federal Standards Statement

A Federal standards analysis is not required because the proposed new rules are not subject to any Federal requirements or standards.

Jobs Impact

The jobs impact of the proposed new rules is speculative. An ODS subject to licensure will be required to operate in compliance with the proposed new rules. Services that may be required for compliance include actuarial, accounting and legal. It is unknown, however, whether an ODS will utilize in-house staff to fulfill these needs or seek the services from outside. In either event, it is unknown whether this actually will result in an increase in jobs as such services may be provided by the persons in those fields already providing such services.

The Department invites commenters to submit any data or studies concerning the jobs impact of the proposed new rules together with their written comments on other aspects of the proposal.

Agriculture Industry Impact

The proposed new rules will have no agriculture industry impact.

Regulatory Flexibility Analysis

The proposed new rules may apply to "small businesses," as that term is defined in the Regulatory Flexibility Act, N.J.S.A. 52:14B-16 et seq. The small businesses affected by the proposed new rules will be entities seeking to become licensed as an ODS. These entities will be subject to all requirements and required to bear all costs of compliance as discussed above.

The proposed new rules provide no different reporting, recordkeeping or other compliance requirements specifically based on business size. As set forth above, the proposed new rules establish regulatory framework pursuant to N.J.S.A. 17:48H-1 et seq. for the licensure of an ODS to ensure that such entity possesses the financial strength and ability to fulfill its contractual obligations to avoid the significant disruptions to insureds, subscribers, providers, carriers, and the market generally, that may result from the insolvency or inability of such an entity to fulfill its obligations. This purpose, as well as the statute itself, do not provide for different compliance requirements based on business size. The Department notes, however, that the rules reflect the provision in N.J.S.A. 17:48H-11, which exempts from licensure entities that assume a de minimis financial risk. Further, the net worth requirements, although not specifically based on business size, relate to the risk assumed. Providing different compliance requirements based on business size thus would thwart the intent of the Legislature as expressed in N.J.S.A. 17:48H-1 et seq. with respect to regulation and monitoring of an ODS that is subject to licensure.

For the foregoing reasons, the proposed new rules provide no differentiation in compliance requirements based on business size.

Full text of the proposed new rules follows:

SUBCHAPTER 4. ORGANIZED DELIVERY SYSTEMS

11:22-4.1 Purpose and scope

(a) This subchapter sets forth the filing and requirements for an entity to be licensed as an organized delivery system pursuant to N.J.S.A. 17:48H-1 et seq.

(b) This subchapter applies to any entity seeking to become licensed as an organized delivery system pursuant to N.J.S.A. 17:48H-1 et seq.; or an existing organized delivery system required to obtain a license to operate pursuant to N.J.S.A. 17:48H-11. A non-exhaustive list of examples of entities and arrangements that are subject to these rules is set forth in Exhibit B in the Appendix to this subchapter, incorporated herein by reference.

11:22-4.2 Definitions

The following words and terms, when used in this subchapter, shall have the following meanings, unless the context clearly indicates otherwise.

"Affiliate" means a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the organized delivery system.

"Capitation" means a fixed per member, per month, payment or percentage of premium payment for which the provider assumes the risk for the cost of contracted services without regard to the type, value or frequency of the services provided.

"Carrier" means an insurer authorized to transact the business of health insurance as defined at N.J.S.A. 17B:17-4, a hospital service corporation authorized to transact business in accordance with N.J.S.A. 17:48-1 et seq., a medical service corporation authorized to transact business in accordance with N.J.S.A. 17:48A-1 et seq., a health service corporation authorized to transact business in accordance with N.J.S.A. 17:48E-1 et seq. or a health maintenance organization authorized to transact business pursuant to N.J.S.A. 26:2J-1 et seq.

"Certified organized delivery system" means an organized delivery system that is compensated on a basis which does not entail the assumption of more than de minimis financial risk by the organized delivery system and that is certified by the DHSS in accordance with N.J.S.A. 17:48H-1 et seq.

"Commissioner" means the Commissioner of the New Jersey Department of Banking and Insurance.

"Comprehensive health care services" means the basic benefits provided under a health benefits plan, including medical and surgical services provided by licensed health care providers who may include, but are not limited to, family physicians, internists, cardiologists, psychiatrists, rheumatologists, dermatologists, orthopedists, obstetricians, gynecologists, neurologists, endocrinologists, radiologists, nephrologists, emergency services physicians, ophthalmologists, pediatricians, pathologists, general surgeons, osteopathic physicians, physical therapists and chiropractors. Basic benefits may also include inpatient or outpatient services rendered at a licensed hospital, covered services performed at an ambulatory surgical facility and ambulance services.

"Consumer Price Index" means the medical component of the Consumer Price Index for all Urban Consumers, as reported by the Untied States Department of Labor, shown as the average index for New York-Northern New Jersey-Long Island region and the Philadelphia-Wilmington-Trenton-region combined as published by the Commissioner in the New Jersey Register.

"Department" means the New Jersey Department of Banking and Insurance.

"DHSS" means the New Jersey Department of Health and Senior Services.

"Financial risk" means exposure to financial loss that is attributable to the liability of an organized delivery system for the payment of claims or other losses arising from covered benefits for treatment or services other than those performed directly by the person or organized delivery system liable for payment, including a loss sharing arrangement. A payment method wherein a provider accepts reimbursement in the form of a capitation payment for which it undertakes to provide health care services on a prepayment basis shall not per se be considered financial risk. A financial risk shall exist if, under an agreement between the organized delivery system and the carrier, the financial obligations of the organized delivery system for payment of benefits or for providing treatment or services does or potentially may exceed any payments that may be received from the carrier. Financial obligation shall include the attendant administrative costs related to providing the treatment or services.

"Health benefits plan" means a benefits plan which pays or provides hospital and medical expense benefits for covered services, and is delivered or issued for delivery in this State by or through a carrier. Health benefits plan includes, but is not limited to, Medicare supplement coverage and risk contracts to the extent not otherwise prohibited by Federal law. For the purposes of this subchapter, health benefits plan shall not include the following plans, policies or contracts: accident only, credit, disability, long-term care, CHAMPUS supplement coverage, coverage arising out of a workers' compensation or similar law, automobile medical payment insurance, personal injury protection insurance issued pursuant to N.J.S.A. 39:6A-1 et seq. or hospital confinement indemnity coverage.

"Licensed organized delivery system" means an organized delivery system that is compensated on a basis which entails the assumption of financial risk by the organized delivery system and that is or should be licensed in accordance with N.J.S.A. 17:48H-1 et seq. and this subchapter.

"Limited health care services" means a health service or benefit which a carrier has elected to subcontract for as a separate service, which may include, but shall not be limited to, substance abuse services, vision care services, mental health services, podiatric care services, chiropractic services or rehabilitation services. Limited health care services shall not include pharmaceutical services, case management services or employee assistance plan services.

"NAIC" means the National Association of Insurance Commissioners.

"Organized delivery system" or "system" means an organization with defined governance that:

1. Is organized for the purpose of and has the capability of contracting with a carrier, directly or indirectly, to provide, or arrange to provide, under its own management substantially all or a substantial portion of the comprehensive health care services or benefits under the carrier's benefits plan on behalf of the carrier, which may or may not include the payment of hospital and ancillary benefits; or

2. Is organized for the purpose of acting on behalf of a carrier, directly or indirectly, to provide, or arrange to provide, limited health care services that the carrier elects to subcontract for as a separate category of benefits and services apart from its delivery of benefits under its comprehensive benefits plan, which limited services are provided on a separate contractual basis and under different terms and conditions than those governing the delivery of benefits and services under the carrier's comprehensive benefits plan. This shall include any agreement to subcontract any separate service or benefit, unless expressly excluded herein.

An organized delivery system shall not include:

1. An entity otherwise authorized or licensed in this State to provide comprehensive or limited health care services on a prepayment or other basis in connection with a health benefits plan or a carrier;

2. An entity regulated under N.J.S.A. 18A:64G-1 et seq.; and

3 Any professional corporation, professional association; or independent practice association, to the extent such entityís shareholders are comprised solely of providers, and the entity performs no duties or services beyond those for which its shareholders are otherwise licensed in this State.

"Provider" means a physician, health care professional, health care facility, or any other person who is licensed or otherwise authorized to provide health care services or other benefits in the state or jurisdiction in which they are furnished.

"Reserve liabilities" means an amount sufficient to provide for:

1. All claims incurred, whether reported or unreported, which are unpaid and for which the system is or may become liable, including the expense of adjustment or settlement of those claims;

2. Continuing health care services for which a consideration has been received, or a consideration is due but unpaid; and

3. Continuing health care services under the contract to persons who, on the date of termination of the contract, are confined in an inpatient facility until discharge from the facility.

11:22-4.3 License requirement

(a) An organized delivery system that receives compensation on a basis that entails the assumption of financial risk shall submit an application for licensure to the Commissioner.

    1. This subchapter shall apply to any contract renewed on or after the effective date of this subchapter. Notwithstanding the obligations imposed by N.J.S.A. 17:48H-1 et seq. and this subchapter regarding licensure requirements, nothing in this subsection shall operate to impair any contract in force as of the effective date of this subchapter for a period not to exceed 24 months.

(b) An organized delivery system that receives compensation on a basis that entails the assumption of financial risk, but meets the criteria set forth in this subsection, may apply to the Commissioner for an exemption from the licensure requirements based on the system's current contractual arrangements. Any organized delivery system seeking an application for exemption shall file the information set forth in Exhibit A in the Appendix to this subchapter, incorporated herein by reference, with a non-refundable filing fee in the amount of $2,500, payable to the Treasurer, State of New Jersey.

1. The Commissioner may grant the exemption for such period of time that he or she determines that the financial risk of the organized delivery system is de minimis because the organized delivery system's exposure to financial loss is limited in amount or likelihood to the degree that it reasonably will not prevent the system from satisfying the liabilities imposed under the terms of its contracts. In making this determination, the Commissioner shall consider various factors in conjunction with the terms of contract with the carrier, including, but not limited to:

i. The existence of stop loss insurance maintained by the organized delivery system from an insurer(s) acceptable to the Commissioner;

ii. Whether the carrier has taken a deduction or credit against the liability it is required to maintain pursuant to law for any risk transferred to the organized delivery system; and

iii. The nature of the risk assumed and the type of coverage related to that risk; and/or

iv. Any limit on the organized delivery systemís liability.

v. In any event, the financial risk shall be deemed de minimis if the total annual compensation received by the organized delivery system from any one carrier is less than $250,000.

2. The Commissioner may revoke the organized delivery system's exemption from licensure, after notice and an opportunity for hearing, if he or she determines that the system's contracts no longer meet the requirements for exemption set forth in this subsection. Any hearing shall be conducted pursuant to the Administrative Procedure Act, N.J.S.A. 52:14B-1 et seq., and 52:14F-1 et seq. and Uniform Administrative Procedure Rules, N.J.A.C. 1:1. Upon revocation of the exemption, the system shall be required to obtain licensure from the Department within 90 days.

(c) An organized delivery system that is granted an exemption from licensure shall apply to and obtain certification as an organized delivery system from the DHSS pursuant to N.J.S.A. 17:48H-1 et seq.

(d) A licensed organized delivery system shall not directly issue health benefits plans.

11:22-4.4 Application procedures

(a) An application for a license to operate an organized delivery system shall be filed with the Commissioner, and shall contain a completed application, containing the information and in the format set forth in Exhibit A in the Appendix to this subchapter, incorporated herein by reference. In addition, the application shall be accompanied by:

1. A non-refundable application fee in the amount of $2,500, payable to the Treasurer, State of New Jersey; and

2. Any additional information as may be required from a particular applicant by the Commissioner or the Commissioner of DHSS.

(b) In addition to the filing fee set forth in (a)2 above, the applicant shall be assessed and shall pay on demand the amount necessary to reimburse the Department for expenses incurred in obtaining a risk assessment report on the applicant from a rating agency determined to be acceptable by the Commissioner.

11:22-4.5 Application review procedures

(a) The Commissioner, in consultation with the Commissioner of DHSS, shall review an application for licensure and notify the applicant of any deficiencies contained therein within 60 days of receipt. An applicant shall address any deficiencies in its application within 60 days of notice thereof.

(b) Upon receipt and review of a complete application that contains all of the information set forth in N.J.A.C. 11:22-4.4, the Commissioner shall issue a license to an organized delivery system if he or she finds that the system meets the following standards:

1. The persons responsible for conducting the applicant's affairs are competent, trustworthy and possess good reputations, and have had appropriate experience, training and education;

2. The persons who are to perform the health care services are properly qualified;

3. The organized delivery system has demonstrated the ability to assure that health care services will be provided in a manner which will assure the availability and accessibility of the services;

4. The standard forms of provider agreements to be used by the organized delivery system are acceptable;

5. The applicant is financially sound and may reasonably be expected to meet its obligations to enrollees, contract holders and carriers. In making this determination, the Commissioner shall consider:

i. The financial soundness of the applicant's compensation arrangements for the provision of health care services;

ii. The adequacy of working capital, other sources of funding (including an acceptable capital and surplus guarantee from a parent or affiliate) and provisions for contingencies;

iii. Whether any deposit of cash or securities, or any other evidence of financial protection submitted, meets the requirements set forth in N.J.S.A. 17:48H-1 et seq. and this subchapter; and

iv. The standards set forth in N.J.A.C. 11:2-27;

6. Any deficiencies identified by the Commissioner have been corrected;

7. The applicant certifies that it is familiar and will comply with all requirements of law pertaining to licensed organized delivery systems set forth in N.J.S.A. 17:48H-1 et seq. and this subchapter; and

8. Any other factors determined by the Commissioner to be relevant regarding a particular applicant have been addressed to the satisfaction of the Commissioner.

(c) Applications accepted after November 1 of each year shall not be reviewed until the next annual statement becomes available and is received for review. The review of such applications shall begin as of April 1 of each year, after the receipt of annual statements which shall be submitted no later than March 1 of each year.

(d) An applicant shall be notified of the decision on an application within 90 days of receipt of a complete application that contains all of the information set forth in N.J.A.C. 11:22-4.4, or within 90 days of the beginning of the review period set forth in (c) above.

(e) The Commissioner shall refer all standard forms of provider agreements, quality assurance programs and utilization management programs to be used by the organized delivery system to the Commissioner of DHSS for review pursuant to standards and requirements established by DHSS. The Commissioner shall consult with the Commissioner of DHSS regarding provider agreements, quality assurance programs and utilization management programs in determining whether the applicant for a license:

1. Has demonstrated the potential ability to assure that health care services will be provided in a manner that will assure the availability and accessibility of the services;

2. Has adequate arrangements for an ongoing quality assurance program, where applicable;

3. Has established acceptable forms for provider agreements to be used by the system; and

4. Has demonstrated that the persons who are to perform the health care services are properly qualified.

(f) The Commissioner, in consultation with the Commissioner of DHSS, may deny an application for a license if the applicant fails to meet any of the standards provided in this subchapter or on any other reasonable grounds. If the license is denied, the Commissioner shall notify the applicant and shall set forth the reasons for the denial in writing. An existing organized delivery system seeking licensure whose application is denied may request a hearing by notice to the Commissioner within 30 days of receiving the notice of denial. The hearing shall be conducted in accordance with the Administrative Procedure Act, N.J.S.A. 52:14B-1 et seq. and 52:14F-1 et seq., and Uniform Administrative Procedure Rules, N.J.A.C. 1:1. Upon such denial, the applicant shall submit to the Commissioner a plan for bringing the organized delivery system into compliance or providing for the closing of its business.

11:22-4.6 Notice of change in documents

(a) A licensed organized delivery system shall not materially modify any matter or document furnished pursuant to N.J.A.C. 11:22-4.4 unless the system files with the Commissioner a notice of the change or modification, together with any additional information to explain the change or modification, at least 60 days prior to the use or adoption of the change, and a filing fee in the amount of $250.00. If the Commissioner fails to affirmatively approve or disapprove the change or modification within 60 days of submission of the notice and any supporting information required by the Commissioner, the notice of modification shall be deemed approved. The Commissioner may extend the 60-day review period for not more than 30 additional days by giving written notice of the extension before the expiration of the 60-day period. If a change or modification is disapproved, the Commissioner shall notify the system in writing and specify the reason for the disapproval.

(b) Prior to entering into any contract with a carrier, a licensed organized delivery system shall file a copy of the contract with the Commissioner for approval. The filing shall be made no later than 60 days prior to the date that the contract is intended to be in effect. The Commissioner shall either approve the contract or state in writing the reasons for disapproval within 60 days of receipt of the filing. Contracts shall be subject to the following standards:

1. The terms shall be fair and reasonable;

2. Charges or fees for service performed shall be reasonable;

3. Expenses incurred and payment received shall be allocated to the system in conformity with customary accounting practices consistently applied;

4. The books, accounts and records of each party to all such transactions shall be so maintained as to clearly and accurately disclose the precise nature and details of the transactions, including such accounting information as is necessary to support the reasonableness of the charges or fees to the respective parties; and

5. The systemís net worth following any transaction shall be reasonable in relation to its outstanding liabilities and adequate to its financial needs.

(c) All contracts between a carrier and a licensed organized delivery system shall satisfy the following requirements:

1. The funds being transferred from the carrier to the organized delivery system shall be first utilized to pay for treatment or services, and attendant administrative costs, for which the system has contracted;

2. The carrier shall have the right to periodic inspection of the books and records of the organized delivery system with respect to the use of the funds received from the carrier under the terms of the contract;

3. Payments under the contract shall be made no less frequently than monthly and no payment to the organized delivery system shall be made by the carrier prior to the first day of the month to which the payment relates;

4. The terms under which the carrier may withhold payments shall be specified;

5. The information to be reported to, and the frequency of such reporting, by the ODS to the carrier for the carrier to determine any applicable credit to the carrierís reserves from the transfer of risk to the ODS shall be specified;

6. Contain a provision that the written agreement, including any written amendments thereto, constitutes the entire agreement between the parties; and

7. Any changes shall be null and void unless made by written amendment signed by the parties, and filed with and approved by the Commissioner.

11:22-4.7 Examinations

  1. The Commissioner may conduct an examination of a licensed organized delivery system as often as he or she deems necessary in order to protect the interests of providers, contract holders, enrollees, and the residents of this State, but not less frequently than once every five years, except that an examination shall be conducted three years after the organized delivery system is initially licensed in this State. A licensed organized delivery system shall make its relevant books and records available for examination by the Commissioner, and retain its records related to the next examination, for not less than seven years. The reasonable expenses of the examination shall be borne by the licensed organized delivery system being examined.
  2. Where the system is domiciled in another state, and subject to regulation in a manner substantially similar to that provided under N.J.S.A. 17:48H-1 et seq. and this subchapter, the Commissioner may accept the report of an examination made by the Commissioner of that state in lieu of conducting examination pursuant to this section.

11:22-4.8 Net worth, deposits and bond

(a) Except as provided in (i) below, a licensed organized delivery system shall, at all times, have and maintain a minimum net worth, determined on a statutory accounting basis, in an amount equal to the greater of:

1. Six percent of the annual compensation received by the organized delivery system for all of its contracts, but in no event less than $100,000; or

2. An amount equal to the sum of eight percent of the annual health care expenditures (not including those expenditures paid on a capitated basis and those made on a managed hospital payment basis), as reported for the most recent four calendar quarters, plus four percent of the annual hospital expenditures paid on a managed hospital payment basis for the most recent four calendar quarters.

i. The amounts set forth in (a) above may be adjusted by the Commissioner to the extent the applicant demonstrates there is a limitation on its exposure to financial loss that results from a contract with a carrier that provides that any liabilities of the system may be satisfied by means of reductions or offsets against monies due to the system from the carrier, and which reductions or offsets the Commissioner finds will not adversely affect the systemís ability to meet its contractual obligations.

(b) A licensed organized delivery system shall establish and maintain a segregated account with respect to the financial risk assuming operations of its business. Such segregated account shall include the income, disbursements, assets and liabilities associated with the financial risk assuming operations of the system. The segregated account shall, at all times, contain assets in an amount at least equal to the sum of its liabilities, including its reserve liabilities, plus the minimum net worth requirement set forth in (a) above. Such assets shall be segregated as separate and distinct funds, independent of all other funds of the organized delivery system. Assets in the segregated account shall be first utilized to provide treatment or services, including attendant administrative expenses, according to the terms of contracts with carriers under which the ODS assumes financial risk.

(c) Assets in the segregated account equal to its liabilities, including its reserve liabilities, and minimum net worth as set forth above, at any point in time, shall be held in cash or publicly traded securities with one year or less to maturity.

(d) Funds in the segregated account, which fair market value, together with that of other amounts withdrawn from the segregated account within the immediately preceding 12 months, that exceeds 10 percent of the total net worth of the segregated account as of December 31 immediately preceding, shall not be withdrawn except upon 45 days prior written notice to the Commissioner, and the withdrawal has not been disapproved prior to the expiration of the 45 day period. Notice of intent to withdraw monies shall contain the information and be in the format of Exhibit C in the Appendix to this subchapter, incorporated herein by reference. In no event may the net worth of the segregated account fall below the minimum net worth requirement set forth in (a) above.

(e) A licensed organized delivery system shall deposit with the Commissioner in accordance with the procedures set forth in N.J.A.C. 11:2-32, cash, securities, or any combination of these or other measures that is acceptable to the Commissioner in an amount equal to 50 percent of the highest calendar quarterly compensation of the most recent four quarters, but in no event less than $25,000, which amount shall be adjusted annually in accordance with changes in the Consumer Price Index. The deposit shall be deemed an admitted asset of the system in the determination of net worth.

(f) All income from deposits shall be an asset of the licensed organized delivery system. A licensed organized delivery system may withdraw a deposit or any part thereof after making a substitute deposit of equal amount and value, except that a security may not be substituted unless it has been approved by the Commissioner.

(g) If a licensed organized delivery system is placed in rehabilitation or liquidation, the deposit shall be treated as an asset subject to the provisions of N.J.S.A. 17B:32-31 et seq.

(h) A licensed organized delivery system shall maintain in force a fidelity bond in its own name on its officers and employees, in an amount not less than $100,000.

(i) Any organized delivery system that pursuant to the terms of the contract, accepts risk in an amount represented by 50 percent or more of any carrierís consideration received to provide services or benefits, shall satisfy all net worth and financial requirements set forth in N.J.A.C. 8:38-11.

11:22-4.9 Financial reports

(a) A licensed organized delivery system shall file an annual report for the segregated account established pursuant to N.J.A.C. 11:22-4.8(b) with the Commissioner, on or before March 1 of each year, for the immediately preceding calendar year, completed as prescribed by the National Association of Insurance Commissioners (NAIC) Health Annual Statement Instructions, and completed on a statutory accounting principles basis, in accordance with the NAIC Accounting Practices and Procedures Manual, effective January 1, 2001, incorporated herein by reference, as amended and supplemented (NAIC, 2301 McGee Street, Kansas City, MO 64108). The annual report shall be submitted using the NAIC health blank in effect at the time of the calendar year reported. Annual statements shall be accompanied by a fee in the amount of $100.00.

(b) A licensed organized delivery system shall submit, no later than June 1, audited annual financial reports for the immediately preceding calendar year for the segregated account established pursuant to N.J.A.C. 11:22-4.8(b), and shall also file a report with respect to all of its operations, completed on a generally accepted accounting principles basis, certified by an independent certified public accountant, in accordance with N.J.A.C. 11:2-26. In addition, a statement by a qualified actuary setting forth the actuary's opinion as to the adequacy of reserves shall be filed with the annual report filed pursuant to (a) above, which shall satisfy the requirements set forth in N.J.A.C. 8:38-11.6(a)2.

(c) A licensed organized delivery system shall file quarterly reports for the segregated account established pursuant to N.J.A.C. 11:22-4.8(b) with the Commissioner, no later than 45 days following the close of each of the first three calendar quarters (that is, May 15, August 15, and November 15, respectively), completed as prescribed by the NAIC Health Annual Statement Instructions, and completed on a statutory accounting principles basis, in accordance with the NAIC Accounting Practices and Procedures Manual, effective January 1, 2001, incorporated herein by reference, as amended and supplemented. The quarterly report shall be submitted using the NAIC health blank in effect at the time of the quarter submitted.

11:22-4.10 Suspension or revocation

(a) The Commissioner may suspend or revoke the license issued to an organized delivery system upon a finding that:

1. The licensed organized delivery system is operating in contravention of its basic organizational documents;

2. The licensed organized delivery system is unable to fulfill its obligations to the carriers with whom it contracts;

3. The net worth of the licensed organized delivery system is less than that required by this subchapter, or the licensed organized delivery system has failed to correct any deficiency in its net worth as required by the Commissioner;

4. The continued operation of the licensed organized delivery system would be hazardous to the health and welfare of the enrollees or contract holders with whom it has contracted to provide health care services or detrimental to a carrier with whom it has contracted to provide the services;

5. The licensed organized delivery system has failed to file any report required by N.J.S.A. 17:48H-1 et seq. or this subchapter;

6. The licensed organized delivery system has failed to provide the health care services for which it has been licensed or has provided health care services which are in contravention of the contract or contracts filed with the Commissioner;

7. The licensed organized delivery system is unable to maintain the standards set forth in this subchapter;

8. The licensed organized delivery system has failed to comply with the provisions of N.J.S.A. 26:2S-1 et seq.;

9. The licensed organized delivery system has otherwise failed to comply with N.J.S.A. 17:48H-1 et seq., or with other applicable law, including this subchapter; or

10. There are other reasonable grounds that warrant suspension or revocation.

(b) If the Commissioner has cause to believe that grounds exist for the suspension or revocation of a license, the Commissioner shall notify the licensed organized delivery system, in writing, specifically stating the grounds for suspension or revocation and fixing a time for a hearing in accordance with the Administrative Procedure Act, N.J.S.A. 52:14B-1 et seq. and 52:14F-1 et seq., and the Uniform Administrative Procedure Rules, N.J.A.C. 1:1. If a license is revoked, the licensed organized delivery system shall submit a plan to the Commissioner within 15 days of the revocation, for the winding up of its affairs, and shall conduct no further business except as may be essential to the orderly conclusion of its business. The Commissioner may, by written order, permit such further operation of the system as the Commissioner finds to be in the best interest of individuals receiving health care services from the system.

(c) The Commissioner shall notify all carriers with contracts with the system that are on file with the Department of the proceedings.

11:22-4.11 Plan for insolvency

In connection with the plan for insolvency required as part of an application for licensure, a licensed organized delivery system shall maintain insurance to cover the expenses to be paid for continued benefits following a determination of insolvency, or make other arrangements acceptable to the Commissioner to ensure that benefits are continued for the period determined in the insolvency plan.

11:22-4.12 Confidentiality

(a) Any data or information relating to the diagnosis, treatment or health of an enrollee, prospective enrollee or contract holder obtained by a certified or licensed organized delivery system from the carrier, contract holder, enrollee, prospective enrollee or any provider shall be confidential and shall not be disclosed to any person except as provided by N.J.S.A. 17:48H-30.

(b) In addition to (a) above, the following documents shall be confidential and shall not be considered public documents pursuant to the "Right-to-Know" law, N.J.S.A. 47:1A-2:

1. Pending applications for a license;

2. In biographical affidavits, the affiantís social security number and residence address;

3. The applicantís business plan;

4. Compensation formulas and fee schedules; and

5. With respect to an examination of a licensed ODS, all information as set forth in N.J.S.A. 17:23-24f and N.J.A.C. 11:1-36.6.

11:22-4.13 Penalties

Failure to comply with the provisions of this subchapter shall result in the imposition of penalties as provided in N.J.S.A. 17:48H-22, 17:48H-29, 17B:30-17, 17:27A-1 et seq., 26:2S-1 et seq., and P.L. 1999, c.154 and P.L. 1999, c.155.