THIRTEENTH CONGRESS OF THE 1

REPUBLIC OF THE PHILIPPINES )

First Regular Session )
b

SENATE I

S. B. No.

Introduced by SENATOR LUISA “LOI” P. EJERCITO ESTRADA

EXPLANATORY NOTE

Article 11, Section 15 of the Constitution declares that the State shall protect and
promote the rights to health of the people and instill health consciousness among them.
Towards this end, the State shall endeavor to enhance the accessibility of affordable
health care services by encouraging the growth of medical/health service providers and
by regulating their activities to prevent the commission of fraudulent acts inimical to the
people.

Pursuant to this constitutional mandate, this measure shall tap the participation of
the private sector in providing, funding and managing Health Maintenance Organizations
(HMOs). This will greatly assist the government in the efficient delivery of quality and
cost-effective basic health care services.

This proposed measure defines the folIowing characteristics to qualify an entity as

health maintenance organization, provides the procedures and requirements for licensing,
and defines the grounds for suspension and revocation of their license to operate.

In view of the foregoing, the immediate approval of this bill is earnestly urged.
c I

LUISA “LOI”
4 EJERCITO ESTRADA
Senator
THIRTEENTH CONGRESS OF THE
REPUBLIC OF THE PHILIPPINES )
First Regular Session 1

SENATE

S. B. No.

Introduced by SENATOR LUISA “LOI” P. EJERCITO ESTRADA

AN ACT
PROVIDING AFFORDABLE HEALTH CARE SERVICES, THROUGH THE
HEALTH MAINTENANCE ORGANIZATIONS, REGULATING THEIR
OPERATIONS, AND FOR OTHER PURPOSES.

Be it enacted by the Senate and the House of Representatives of the Philippines in

Congress assembled:

SECTION 1. Short Title.- This Act shall be laown as the “Health Maintenance
Organizations (HMOs) Act of 2004.”

SECTION 2. Statement of Policy.- It is hereby declared the policy of the State to

protect and promote the right to health of the people and instill health consciousness
among them.

Pursuant to this policy, government shall enhance accessibility to affordable

health care services by recognizing and tapping the participation of the private sector in
providing funding and managing the delivery of cost effective and quality health care
services. Towards this end, it shall encourage the growth of health maintenance
organizations (HMOs) and provide the regulatory framework that will ensure their
sustainability and viability in order to protect the interest of the public.

SECTION 3. Objectives. -In line with the above policy, this Act seeks to:

a. Recognize HMOs as unique medical service providers that combine the

financing, management and provision of health services and to encourage
their growth;
b. Establish the regulatory framework for HMOs that shall protect the rights
of the buying public as well as the various sectors involved in the delivery
of health care services;
c. Promote the provision of quality health services and to improve the
efficiency in delivery of health care services;
 d. Protect the rights of HMOs, their enrollees and health care service
providers; and

e. Make people more health-conscious by making health care services

readily available, accessible and affordable.

SECTION 4. Definition of Terms.- When used in this Code, the following terms
shall mean:

a. Actuavy - a person with the necessary training, qualification and

experience and a fellow of the Actuarial Society of the Philippines. She/he
shall, among others, compute rates and reserves for health care plans on
the basis of experience tables and determine the financial soundlessness of
health care agreements and operations of HMOs;
b. Agreement - a contract entered into by an HMO with a member or group
of members or a corporation on behalf of its employees and/or their
dependents, for the former to provide or arrange to provide pre-agreed or
designated health care services to the latter, for a fixed period of time and
for a specified fee;
C. Association - the Association of Health Maintenance Organizations of the
Philippines, Inc. (AHMOPI), the existing association of Health
Maintenance Organizations, recognized by the Department of Health as
the industry association and representing a large number of HMOs as well
as a greater majority of enrolled members;
d. Co-payment - the amount a member must pay in order that she/he can
receive a specific service which is not fully prepaid;
e. Corporation - a juridical person as defined by law, duly registered with the
Securities and Exchange Commission;
f. Deductible - the amount an enrollee pays out of pocket before the health
maintenance organizations begins to pay the cost associated with
treatment;
€5 Department - the Department of Health (DOH);
h. Commission - the Insurance Commission;
1. Health Maintenance Organization (HMO) - a type of managed care
organized in accordance with law to provide pre-agreed or designated
health care services to its enrolled members for a fixed periodic fee and for
a specific period of time. It uses a system of health care delivery called
managed care that influences utilization and costs of services and
 measures performance resulting in quality cost-effective care. It integrates
financing and delivery of health care services through managed health
plans which may be in the form of a comprehensive HMO Plan, preferred
provider plan managed indemnity or self-insured plans, third party
administration plan and such other that fall under the definition of a
managed health plan under paragraph (k) of this section.

A health maintenance organization shall possess the following

characteristics to qualify as HMO:

1. An organized system of managing and assuring health care

services in a defined geographical area;
2. A pre-agreed set of basic and supplemental health maintenance and
treatment services;
3. Have an enrolled group of individuals paying a fixed periodic fee.

j. Managed Care - a system of health care delivery that influences utilization

and cost of services and measures performance with a goal to deliver
quality and cost- effective health care;
IC. Managed Health Plan - a plan that covers health care services through an
integrated and organized system of financing, delivery, and management
of services to an enrolled population for a specific period of time on a
fixed periodic fee;
1. Member or Enrollee - an individual or a person who is part of a group or
an employee and/or dependents or a corporation, who entered into a
contract with an HMO;
m. Person - a natural or judicial person as defined by law;
n. Provider- a health professional such as physician, dentist, nurse, midwife,
physical therapist or health care professional's group, or a health facility
such as hospital, diagnostic clinic, pharmacy licensed or authorized by the
proper government agency to provide health care services;
0. Participating or Accredited Provider - a provider as defined in paragraph
(n) who, under an express contract with, or is owned and operated by, a
health maintenance organization (HMO) or with the latter's contractor or
subcontractor, has agreed to provide health care services to the HMO
enrollees, with the right to payment, other than co-payment or deductible
directly or indirectly from the HMO.
 P. Membership fee - the amount of money paid by an individual member,
group corporation on behalf of its employees and the latter's dependents, in
payment for pre-agreed set of health services, for a specific period of time.

SECTION 5 . Health Care Incentives - HMOs and health care providers engaged
in health care services pursuant to the provisions of this Act shall be entitled to the
following incentives.

1. Reduced customs duties for importation of medical equipment used in

health care services of HMOs and similar providers contemplated under
this Act; Provided, That such equipment are used exclusively by the
HMO and not for resale.
2. Exemption fi-om percentage tax, documentary stamp tax and Value Added
Tax on all health care agreements so as to reduce the cost of health care;
3. The cost of health care membership fees that corporations or employers
pay for the health care plans of their employees shall be deductible from
the taxable income of said employers, as this will encourage employers to
provide health care plans for the employees;
4. Such other incentives that the Insurance Commission and the Department
of Health may deem proper to recommend subject to the concurrence by
the Department of Finance and approval by the President of the
Philippines.

SECTION 6. Registration. - An HMO shall be legally organized as a juridical

person and shall be registered with the Securities and Exchange Commission. Thus,
HMOs shall be organized in accordance with the provisions of the Corporation Code.

SECTION 7. Licensure. - The Insurance Commission is hereby designated as the

government agency to supervise and regulate the operations of HMO and all other
entities offerjng health care services that fall under the definition of HMO in accordance
with Section 4 of this Act. After registering with the Securities and Exchange
Commission, said entities shall secure a license to operate as an HMO from the Insurance
Commission. Existing HMOs at the time of the effectivity of this Act shall likewise
secure a license to operate from the Insurance Commission in accordance with the
Transitory Provisions provided herein.
 The Commission shall issue the license to operate within thirty (30) days from the
submission of the complete application and requirements. In case the application is not
approved, the reasons therefore shall be made known to the applicant immediately.

However, if the HMO will directly provide health care services such as medical
consultation and/or treatment by their own employed medical professional, perform
laboratory or diagnostic sewices/operate clinics or hospitals, they shall also secure a
license from the Department of Health for said facilities.

SECTION 8. Licensure. - The Insurance Commission and Department of Health

shall promulgate the requirements for licensure and renewal of license of HMOs based on
the provisions of Section 7 of this Act. The requirements shall include, but not be limited
to:

a. The minimum authorized and paid-up capitalization required;

b. Financial Statementsh’rojections for new HMOs;
c. Annual Reports for existing HMOs;
d. Data on membership enrollment;
e. Health Care Services being offered;
f. Geographical area of operation; and
g. Such other information or requirements that the Commission and/or the
Department may deem necessary.

These requirements may be amended to conform to the needs of the time and such
requirements or any amendment thereto shall be effective for a period of one year,
subject to renewal by the Commission.

SECTION 9. Actuaries/Financial Consultants. - To protect the potential and

enrolled members of HMOs/ the Commission shall ensure that HMOs adhere to
actuarially sound practices and possess financial capabilities to render the services
stipulated in their agreements.

To achieve these objectives, the Commission shall engage the services of

actuaries and/or financial consultants to analyze the financial status and the actuarial
soundness of HMO practices prior to the issuance or renewal of licenses. For this
purpose, the Commission shall require from HMOs such additional data and reports it
deems necessary. Provided, that such data and reports are certified by either an actuary,
financial consultant or external auditor.
 SECTION 10. Association.- All Health Maintenance Organizations shall, for
purposes of achieving unity in the industry, facilitating government regulation, mutual
assistance among HMOs, self-regulation and quality competition, be encouraged to be a
member of the existing association of Health Maintenance Organizations at the time of
the enactment of this Act.

SECTION 11. Arbitration by the Association and by the Commission. -

Complainants that may be brought by members or providers or even by a HMO against
another HMO shall be referred to the Association for arbitration. The Association shall
refer such complaint to the grievance mechanism in the Association and shall be decided
within thirty (30) days. In the event no settlement of the complaint has been reached after
thirty (30) days, the Association shall submit the case to the Commission which shall
assume jurisdiction over the case and shall decide the case within sixty (60) days. The
decision of the Commission shall be final and executory, appealable to the Supreme
Court only on question of law.

SECTION 12. Grounddor Suspension of License. -The license to operate issued

to HMOs may be suspended by the Commission, with strict adherence to due process, on
the following grounds;

1. When, based on the financial reports, continued operation of the HMO

business is no longer financially sound;
2. When, without justifiable cause, agreements with members are not
honored;
3. When the statements in the application for license or renewal thereof are
found to be false, misleading, inadequate or incomplete such that the
Department cannot ascertain the true status from such statement, sufficient
to arrive at an honest appraisal of the true capability of the HMO;
4. When the decision of the Association or arbitration of complaint is not
honored by a HMO; and
5. When a HMO continuously violates the rules and regulations issued by the
Commission and the Department in implementing this Act as provided for
in Section 19 hereof.

SECTION 13. Grounds for Revocation of License.- The Commission shall

revoke the license of any Health Maintenance Organization, with strict adherence to due
process, on the following grounds.
 1. Repeated violations of this Act by an HMO;
2. Unjustified refusal to provide the health care services contracted for by a
member as provided for in the agreement;
3. Impairment of the financial status of the HMO, as may be determined by
the Commission during suspension based on paragraph 1 of Section 12
hereof, after a fair appraisal by impartial actuaries and financial
consultants, such that, even if allowed to continue to operate, it can no
longer provide the services it assumed under the agreement with its
members; and
4. Refusal to comply with decisions of the Commission on cases submitted
by the Association for arbitration.

In all cases of revocation, the Commission shall have the authority to assign the
agreements of the HMO whose license was revoked, to other existing HMOs, or to order
such applicable remedies in order to protect the rights derived by members from the
agreements.

SECTION 14. The following administrative sanctions are hereby imposed for
violations of this Act:

1. A fine of Twenty Thousand Pesos (P20,OOO.OO) for the first violation of

the provisions of this Act, Thirty Thousand Pesos (P30,OOO.OO) for the
second; and Fifty Thousand Pesos (P50,OOO.OO) for the third violation. For
the fourth violation of this Act, the provision of Section 13, shall apply;
2. A fine of One Hundred Thousand Pesos (P100,OOO.OO) every time the
license of the HMO is suspended. Provided, That payment of this fine
shall not absolve the HMO from its obligations under the agreements it has
contracted with members andor participating or accredited providers,
3. An order to freeze the assets of the HMO suspended or revolted for the
protection of investors, providers and members.

The amount that may be collected as fines shall be retained by the Commission
for its use in the information dissemination mentioned in the following section: Provided,
That a separate account be maintained by the Commission for such purpose.

Violations committed by HMOs in the direct provisions of health care services,

perfoimance of laboratory or diagnostic services, operation of hospitals or clinics shall be
subject to applicable rules and regulations of the Department of Health.
 SECTION 15. Reinstatement of Suspended or Revoked Licenses. - The
Commission shall order the reinstatement of a suspended or revolted license upon
reasonable showing that the ground for which the suspension or revocation was based has
ceased to exist and that the HMO has sufficiently complied with the requirements the
Commission may determine for such reinstatement.

SECTION 16. Publication. - The Commission and the Department shall jointly
inform the public by publishing periodically:

1. List of licensed HMOs.

2. Suspension and/or revocation of the license, of HMOs, copies of which
shall be furnished to associations of the medical profession, hospitals and
employers who shall inform their members accordingly.

SECTION 17. Existing HMOs. - Health Maintenance Organizations registered

with the Securities and Exchange Commission and the Department that have been in
operation prior to the effectivity of this Act shall continue to operate: Provided, That they
shall apply for a new license with the Commission within one year from the effectivity of
this Act.

SECTION 18. New License. - The Commission shall grant the above HMOs their
new licenses in accordance with this Act. Provided, That the existing agreements, the
rights and obligations derived therefrom shall be respected: Provided, further. That the
HMOs comply with the licensing requirements within one year.

SECTION 19. Appropriations. - The amount iiecessary for the implementation

of this Act shall be included in the General Appropriations Act of the year following its
enactment and every year thereafter.

SECTION 20. Implementing Rules and Regulations. - The Commission and the
Department of Health, in consultation with the concerned sectors, shall promulgate the
niles and regulations necessary to implement this Act within Ninety (90) days from its
approval. Such niles and regulations shall be furnished to HMOs and concerned sectors
and shall take effect upon publication in a newspaper of general circulation.

SECTION 21. Separability Clause.- If any provision of this Act is declared

unconstitutional or invalid, the other provisions not affected by such declaration, shall
remain iii full force and effect.
 SECTION 22. Repealing Clause. - All laws, decrees, ordinances, rules and
regulations, executive or administrative orders or parts thereof inconsistent with this Act
are hereby repealed, amended or modified accordingly.

SECTION 23. Effectivity. - This Act shall take effect fifteen (1 5 ) days following
its publication in at least two (2) newspapers of general circulation.

Approved,

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