2001 Legislative Compendium: Market Fairness/Managed Care Reform

Delegated Networks | Credentialing | Prohibition of Mandatory Hospitalists | Hospital Due Process | Health Plan Colorectal Cancer Screening | Women's Health Payment Parity | Coverage of Nurse First Assistants | Coverage for Brain Injuries | Disclosure of Health Plan Contacts | Mandated Health Benefits | Insurance Fraud | Reimbursement for Out-of-Network Providers | Prompt Payment | Health Plan Due Process | Consumer Assistance Program | Standardized Contracts | Physician Negotiations


HB 2828, sponsored by Rep. John Smithee (R-Amarillo) and Sen. Chris Harris (R-Arlington), sets forth provisions relating to the complaint and reporting requirements of a written agreement between a delegated entity and an HMO, provides penalties for failure to comply with the agreement, establishes financial reserve requirements in certain circumstances, and provides for related consumer information and protections. The bill was a product of extensive work by representatives from physician networks, consumer groups, and health plans conducted before and during the session. The rulemaking authority for this bill rests with the Texas commissioner of insurance, and it takes effect Sept. 1, 2001.

HB 2828's roots originated when the 76th Texas Legislature set standards for HMOs that delegate certain responsibilities to physician networks. During the interim, it was determined that the commissioner lacked needed authority to regulate physician networks, and HMO network failures prompted a call for the establishment of reserve requirements. Additionally, confusion and concerns among consumers about the requirements for limited provider networks needed to be addressed. HB 2828 amends legislation passed in 1999 to further regulate those provider networks that assume some financial risk and perform certain functions of an HMO.

The bill does the following:

  • Grants greater and more direct oversight, in part, by giving the commissioner the ability to directly investigate and regulate network activities without having to go through the HMOs to obtain enforcement authority.
  • Requires financial reserves when networks or health care entities (e.g., hospitals) assume financial risks for services other than those regularly provided by the applicable network or entity. For example, the bill requires reserves when a network accepts facility risk, but reserves are not required when the network accepts financial risks involving its physicians.
  • Requires financial reserves anytime a network or health care entity accepts pharmacy risk.
  • Requires that the reserves be held at a financial institution in Texas.
  • Requires that the reserves be held in trust for the benefit of, or to provide health care services to, the HMO enrollees.
  • Increases the information required to be exchanged between the HMO and the network.  The bill establishes penalties for failure to provide required information.
  • Clarifies and increases patient protections that apply to these networks and strengthens disclosure standards used to explain the operation of delegated physician networks to consumers.
  • Provides that contracts between a delegated entity and physicians shall provide procedures for resolving disputes regarding the necessity for continued medical treatment.


Currently, all contracts between HMOs and physicians or other providers require credentialing. The initial credentialing process includes an application, verification of information, and a site visit. As originally introduced, this legislation was designated SB 1143 and HB 576 and was sponsored by Sen. John Carona (R-Dallas) and Rep. Kyle Janek, MD (R-Houston). However, after these bills stalled, their sponsors tacked the majority of their provisions onto SB 544. In addition to the credentialing provisions, SB 544 by Sen. J.E. "Buster" Brown (R-Lake Jackson) mandates that HMOs include periodic health evaluations for each adult enrollee under certain coverage. The rulemaking authority rests with the commissioner of insurance, and the effective date of the bill is Sept. 1, 2001.

The bill includes the following provisions:

  • Compels the commissioner to require an HMO to verify that a physician's license to practice medicine, and any other certificate the physician is required to hold, is valid as of the date of initial credentialing and on the date of each recredentialing.
  • Requires the commissioner to compel an HMO that conducts a site visit, for the purpose of initial credentialing, to evaluate the site's accessibility, appearance, space, medical record-keeping practices, availability of appointments, and confidentiality procedures.
  • States that the commissioner may not require that HMOs:

  • Evaluate the appropriateness of equipment during the site visit,
  • Formally recredential physicians more frequently than once in any three-year period,
  • Verify the validity of a license or certificate held by a physician other than as of the date of initial credentialing or recredentialing of the physician,
  • Use clinical personnel to perform a site visit for initial credentialing of physicians unless clinical review is needed during the site visit, or
  • Require a site visit be performed for recredentialing of a physician.

  • An HMO may perform a site visit of a physician at any time for cause.
  • Requires the commissioner by rule to adopt a standardized form for the verification of the credentials of a physician and that a hospital, HMO, or PPO use the form for verification of credentials. In adopting a standardized form, the bill requires the commissioner to consider any credentialing application form that is already widely used in this state.
  • Requires the Texas State Board of Medical Examiners (TSBME) to study the establishment of a program for standardized credentials verification using a credentialing information system. Requires the board, not later than Jan. 1, 2003, to report on its study to the governor, lieutenant governor, and speaker of the House of Representatives.


During the 1999 legislative session, TMA and an array of specialty societies, including the Texas Academy of Family Physicians, Texas Pediatric Society, and Texas Academy of Internal Medicine, advocated a bill prohibiting the mandatory use of hospitalists by HMOs and PPOs. The legislation was filed in response to a growing number of health plan policies requiring physicians, particularly primary care physicians, to hand off their patients' care to a hospitalist during an inpatient stay. 

Aggressive lobbying by health insurance plans stalled the bill in the House Calendars Committee, which determines which bills make it to the House floor. As a result, the bill died. This year, the legislature adopted HB 606, by Representative Smithee, achieving the association's goal to prohibit health plans from requiring the use of hospitalists. The legislation applies to HMOs and PPOs and simply says that a health plan cannot compel a physician to use a hospitalist for inpatient care. A hospitalist is defined as a physician "who serves as physician of record at a hospital for a hospitalized patient of another physician and who returns the care of the patient to that other physician at the end of the patient's hospitalization."

The bill becomes effective Sept. 1, 2001 and applies to contracts issued on or after the bill's effective date.


HB 3152 by Rep. Jaime Capelo (D-Corpus Christi) and Senator Brown provides that the process for considering applications for hospital staff privileges or renewing, modifying, or revoking such privileges must meet the due process requirements of the federal Healthcare Quality Improvement Act. This act sets the standards for due process in Medicare and other federal programs. Standards relate to such things as notice of proposed actions, conduct of hearings and notices, evidence that can be presented, the right of representation by an attorney, and the right to call and cross-examine witnesses. The act also states that if the provider wants mediation, the physician can require the hospital to participate in mediation.


SB 1467 by Sen. Mike Moncrief (D-Fort Worth) directs insurance companies to cover certain screening procedures for colon cancer. The Texas Society for Gastroenterology and Endoscopy actively promoted the bill, which is based on legislation in Virginia requiring health plans to adhere to national cancer screening guidelines published by the American College of Gastroenterology and Endoscopy and the American Cancer Society. While SB 1467 does not specifically reference the national guidelines, the bill does say that insurance companies must offer (1) fecal occult of the stool annually and flexible sigmoidoscopy every five years, or (2) colonoscopy every 10 years to patients over age 50 who are at normal risk for colon cancer. Health plans are required to notify patients of this benefit.

The Texas Department of Insurance (TDI) is required to implement rules for SB 1467. The act takes effect Sept. 1, 2001 but only applies to health plan contracts issued or renewed on or after Jan. 1, 2002. 

(For more information about this bill, contact Laurie Reece, executive director, Texas Society for Gastroenterology and Endoscopy, at [512] 370-1522.)


SB 8 by Sen. David Cain (D-Dallas) requires HMOs and insurance plans to pay physicians and hospitals equally for women-specific surgeries as well as for other equivalent procedures. Specifically, the bill states that when reimbursing a physician or provider for reproductive and oncology services for women, the plan must pay an amount not less than the annual average compensation per hour or unit as would be paid to a physician or provider performing a comparable service on a man.

SB 8 states that there has been widespread discrimination in compensating providers of women's health care and that this discrimination creates an economic disincentive to invest funds in training doctors, in creating suitable hospital facilities, and in conducting female-specific medical research, all of which further result in unequal treatment of women in the health care field.

The bill allows TDI to impose penalties for health plans that fail to comply. Within 90 days of the effective date of the act (Sept. 1, 2001), the Texas Department of Health, Texas Department of Human Services, and TDI must repeal any rules that are contrary to this act and adopt new rules implementing SB 8 requirements.

SB 8 becomes effective Sept. 1, 2001, but applies only to health plan policies issued or renewed on or after Jan. 1, 2002.


HB 803 by Rep. Rob Junell (D-San Angelo) requires health insurers, including HMOs, PPOs, and Medicaid, to provide coverage and reimbursement for services by a nurse first assistant. A "nurse first assistant" is defined as a registered nurse who is certified in perioperative nursing by an organization recognized by the nursing board and who has completed a nurse first assistant educational program also approved by the nursing board. Services that the nurse first assistant provides must be within the practitioner's scope and requested by the physician whom the nurse is assisting. A health insurer may provide for a different reimbursement schedule for nurse first assistants so long as the reimbursement methodology is the same as that used for physicians.

Insurers, HMOs, and PPOs cannot require via contract that a physician use the services of a nurse first assistant.

HB 803 takes effect on Sept. 1, 2001, but applies only to health insurance policies issued or renewed on or after Jan. 1, 2002.


HB 1676 by Rep. Lon Burnam (D-Fort Worth) and Sen. Leticia Van de Putte (D-San Antonio) states that health plans may not exclude coverage for cognitive and neurological services, including rehabilitation and therapy, for patients with brain injuries or who are diagnosed with a neurological disease. Insurers now frequently exclude coverage of rehabilitation services as part of a health benefit plan on the basis that these conditions are a mental rather than physical illness. The bill also requires TDI to adopt rules requiring health plans to provide training for personnel who preauthorize services in order to prevent wrongful denial of coverage when assessing what is a medical benefit versus a mental health benefit.

By January 2007, the Texas Sunset Advisory Committee is required to assess the results of HB 1676, including whether patients are receiving services and whether the act increases health plan costs.

HB 1676 takes effect on Sept. 1, 2001, but applies only to health plan policies issued or renewed on or after Jan. 1, 2002.


SB 1181 by Sen. Eliot Shapleigh (D-El Paso) and Rep. Craig Eiland (D-Galveston) requires that when a patient makes an oral or written request for information about the health plan, the plan must provide to that patient the name or employee identifier, mailing address, business city and state location, and job title of the health plan employee who is available to respond to patient communications and questions about coverage and benefits that the health plan offers.

SB 1181 took effect immediately.


HB 1610 by Rep. Kip Averitt (R-Waco) requires health benefit plans to collect and report cost and utilization data to TDI for each mandated health benefit and mandated health offer designated by the commissioner of insurance.   TDI will develop rules to implement the bill.  TDI may utilize data obtained under this act to determine the impact of mandated benefits on Texas health plans, patients, and providers.


HB 1562 by Rep. Senfronia Thompson (D-Houston) and Senator Moncrief relates to the control of health insurance fraud. Because insurance fraud costs our nation's health care system several billion dollars annually, the bill sets forth requirements for the investigation of such fraud, directs insurers to adopt fraud plans, and coordinates enforcement efforts between the Office of the Attorney General (OAG), Medicaid, and TDI. HB 1562 does not expressly grant to a state officer or entity any rulemaking authority not expressly stated in the bill. Specific provisions include the following:

  • Directs the Insurance Fraud Unit to receive, review, and investigate insurer antifraud reports.  The unit is to report annually to the commissioner of insurance the number of cases completed and any recommendations for new regulatory or statutory responses.
  • Relieves a person from liability for providing information regarding insurance fraud to certain governmental entities or a special investigative unit of an insurer and protects such information from public disclosure.
  • Directs insurers to include a certain antifraud statement on their claim forms and if the insurer collects direct written premiums, to adopt an antifraud plan containing statutorily required elements.
  • States that a physician commits unprofessional conduct if he or she knowingly presents a false or fraudulent claim for the payment of a loss under an insurance policy; or knowingly prepares, makes, or subscribes to any writing, with intent to present or use the writing, in support of a false or fraudulent claim under an insurance policy. A violation of this provision can constitute cause for the revocation or suspension of a provider's license, permit, registration, or certificate, or may result in other disciplinary action.


HB 2831 by Representative Smithee and Sen. David Sibley (R-Waco) requires a managed care entity to provide an out-of-network physician with a written description of its reimbursement factors if the physician requests such information. Current law does not require a managed care entity to provide an out-of-network physician with a description of the standards it uses to determine the amount of his or her potential reimbursements for health care provided to an enrollee in the entity's plan. Rulemaking authority is granted to the commissioner of insurance, and the legislation takes effect Sept. 1, 2001.

HB 2831 does not require a managed care entity to disclose proprietary information that a contract between the managed care entity and a vendor who supplies payment or statistical data to the managed care entity prohibits from disclosure. The bill prohibits a contract between the managed care entity and a vendor from prohibiting the managed care entity from disclosing certain information. Under some circumstances, the legislation also requires a managed care entity that denies a request from an out-of-network physician to send a copy of the request and the information requested to TDI for review.

Market Fairness/Managed Care Near Misses


HB 1862, sponsored by Representative Eiland and Senator Van de Putte, was vetoed by Gov. Rick Perry despite the fact that both the Texas House of Representatives and the Texas Senate unanimously passed the bill with overwhelming, bipartisan support. Because current law is riddled with loopholes, which health plans routinely exploit, the purpose of the legislation was to close the loopholes and establish a "fair pay" set of rules for the compensation of physicians and providers by HMOs and PPOs. TMA, along with an array of other health professional and provider advocacy groups, thoroughly supported the development and passage of HB 1862.

In vetoing the bill, the governor stated that HB 1862 "would erode the ability of a health plan to agree, through contract or otherwise, to settle contract disputes through alternative dispute resolution or binding arbitration. By eliminating the ability to include an alternative dispute resolution clause, this bill is likely to send more disputes to the courthouse for resolution, further delaying the payment of claims, driving up the cost of health insurance premiums, and increasing the number of uninsured Texans." Other reasons the governor gave for his veto included the passage of prompt payment and physician joint negotiation laws during the 1999 legislative session and the passage of the delegated networks bill this session.

After explaining his reasons for the veto, Governor Perry stated that "unless significant improvements are soon realized and health plans demonstrate a strong commitment to prompt pay laws and to honoring their contractual relationships with physicians and health care providers, Texas may have to adopt stronger laws than those proposed in House Bill No. 1862." He also said that he would direct TDI to "be more aggressive in assisting physicians and health care providers in claims disputes" and to "reopen and strengthen existing prompt pay rules." Finally, the governor directed the department to report on these efforts in addition to recommendations for necessary action before the beginning of the next legislative session.

TMA is extremely disappointed by the governor's veto.  However, beginning immediately, the association will work with TDI, OAG, and all other appropriate entities to pursue any means possible to strengthen the substance and enforcement of the current law.  In this regard, the following highlights of HB 1862 demonstrate the needed advancements that TMA will seek:

Elements of a Clean Claim

  • A clean claim defined as a properly completed HCFA 1500 form for physicians and other professionals, or a UB 92 form for institutions and facilities.
  • All claims filed using the defined form, which cannot be altered by contract.

Submission of a Claim

  • Proof of timely filing that is transferable from one plan to another.
  • The claim is considered received by the plan three days after the physician mails it first class.
  • The claim is considered received by the plan within 24 hours of the physician submitting it electronically.

Coordination of Benefits

  • Physicians in no way are responsible for coordination of benefits investigations.
  • The investigation of eligibility for payment by a plan(s), including any coordination of benefits, shall not extend the period for determining if a claim is eligible for payment.


  • Each plan pays the physician its respective estimated portion of a claim by the 45th day of receipt of the clean claim.
  • The plan has a maximum of 180 days after making payment to provide the physician with written notice of overpayment; otherwise, the plan loses the right to collect.

Coding Guidelines and Requirements

  • A contract between a health plan and a physician must provide that the physician may request and receive a description of the coding guidelines and fee schedules applicable to specific procedures the physician will perform under the contract.
  • The plan must provide the coding guidelines and fee schedules no later than the 30th day after the physician's request.
  • The physician reserves the right to cancel the contract on or before the 30th day after the date the physician receives coding and fee schedule information without penalty or discrimination in participating in other health care products or plans.
  • The health plan is required to provide the name, edition, and model version of the software that the plan uses to determine bundling and unbundling of claims.
  • Plans are required to pay claims according to nationally recognized, generally accepted CPT codes, notes, and guidelines.
  • Plans are required to pay claims consistent with nationally recognized, generally accepted bundling logic and edits.

Additional Information and Attachments

  • Once a physician files a claim, a plan has only one opportunity to request additional information.
  • The requested attachments must be claim specific, related to the episode of care, and clinical in nature.


  • When a physician requests verification of the eligibility for payment of a particular medical service, the plan is required to inform the physician whether the service is eligible for payment.
  • Plans that require verification must ensure that the appropriate staff are reachable at set times to provide such verification.


  • Within a specific time frame, plans are required to provide a list of its preauthorization requirements and procedures.
  • After receiving a request that requires preauthorization, the plan must transmit its determination to the physician within a set period of time.

Contract Issues

  • Prohibits a plan from circumventing the law through contract clauses.
  • If a noncontracted physician is required to provide services because of an emergency situation or because a contracted physician was not reasonably available, the statutory prompt payment requirements shall apply.

Penalty and Enforcement Provisions

  • If a plan fails to correctly pay or deny a claim within the legal time limit, the plan is required to pay a penalty consisting of the lesser of billed charges plus 15-percent interest per annum or double the contracted rate plus 15-percent interest per annum.
  • Prohibits a plan from unilaterally requiring that a physician use binding arbitration.
  • Extends to the Texas attorney general authority to seek remedies and levy fines against health plans regarding certain violations of the statute.

HEALTH PLAN DUE PROCESS                                                                          

HB 1913 by Representative Capelo and Senator Shapleigh was vetoed by the governor because of concerns that the bill would unduly limit the ability of a health plan to immediately suspend a physician or provider for reasons related to quality or health care fraud. Had HB 1913 passed, it would have established that a health plan could not terminate a PPO or HMO contract with a provider for quality of care reasons without first providing a hearing before a review panel. Proceedings would have been obligated to adhere to the due process requirements outlined under the federal Healthcare Quality Improvement Act and to be conducted before the plan filed a complaint with the TSBME or the National Practitioner Data Bank. Additionally, the plan would have been required to show good cause if it acted contrary to the decision of the review panel. 

CONSUMER ASSISTANCE PROGRAM                                                           

In 1999, the legislature established a consumer assistance program to help consumers with questions and concerns about HMOs regulated by TDI. However, it is estimated that half of privately insured Texans are enrolled in a self-funded health plan outside the purview of state regulation. Patients within these plans often misunderstand their health care options or are unaware of their rights and responsibilities when insurance approvals or payments are delayed or denied. HB 2430 by Rep. Elliott Naishtat (D-Austin) and Senator Carona created a consumer assistance program within the Office of the Public Insurance Counsel to provide information to all health insurance consumers who have questions about insurance options and to assist persons who are experiencing problems with their insurance coverage.

SB 1 appropriated $200,000 to establish the program.  In vetoing the bill, Governor Perry indicated the ombudsman program was not adequately funded. TMA strongly supported the bill.


In the final days of the session, HB 2620, sponsored by Rep. Toby Goodman (R-Arlington) and Sen. Jane Nelson (R-Flower Mound), was left stranded in the House Calendars Committee, the committee responsible for setting House floor debate. The legislation instructed TDI to convene a work group, with representation from physicians, consumers, and health plans, to develop the contents and criteria for a uniform, standardized contract. The goal of HB 2620 was to allow physicians to easily compare the contracts of multiple plans. Also, these contracts would reduce costs by minimizing the administrative burdens of the physician and would protect patients from provisions that place physicians in positions of conflict.  TMA strongly supported the bill. 

TMA helped develop the bill because almost 60 percent of physicians have more than 25 percent of their patients in managed care plans. This equates to nearly 40 percent of their practice revenue. Managed care organizations require physicians and patients to complete large amounts of paperwork. Increasing administrative costs are a possible factor in rising health care costs, and administrative duties detract from the time physicians are able to spend with their patients. Most managed care organizations ask for the same information in their contracts, but these contracts are in different formats. Additionally, contracts often contain provisions that nullify statutory protections provided to physicians by the legislature. It was intended that HB 2620 accomplish the following:

  • Establish a nine-member contract advisory panel to advise and make recommendations regarding the adoption of standard contract forms.
  • Authorize the commissioner to suspend or revoke a managed care entity's license or other authority to engage in the business of insurance in this state if the commissioner determines that the managed care entity failed to use the requisite contract form.
  • Allow for modification of the contract but limit and standardize any addenda.

During the legislative interim, TMA will work with managed care plans and other provider groups to try to craft a model, standardized contract.


HB 3012, sponsored by Representative Smithee, died while pending in the Senate Business and Commerce Committee. The bill would have extended the physician joint negotiation law for four more years and provided confidentiality protections for certain business and financial information physicians provide to the OAG as part of their application to negotiate. Just like its predecessor during the last session, this bill received considerable resistance from business and insurance groups. TMA helped to develop and strongly backed this legislation.

The association's disappointment regarding the loss of HB 3012 is somewhat mitigated by a recent attorney general open records ruling pertaining to an application to negotiate under the current physician joint negotiation law. The ruling stated that the physician's business and financial information constituted trade secrets, and therefore, was protected from distribution to the public.

At the time it was stranded, HB 3012 had passed the House and was set for a hearing in the Senate Business and Commerce Committee. However, the committee adjourned for lack of a quorum without voting on the legislation by its deadline to do so. HB 3012 was among dozens of bills that failed to clear senate committees by the deadline.

The statute enabling physician negotiations will expire on Sept. 1, 2003. TMA again will seek to reauthorize the statute during the next legislative session.

Market Fairness TMA Staff Contacts

  • Rich Johnson, Director, Division of Medical Economics, (512) 370-1315
  • C.J. Francisco, JD, Senior Counsel, Office of the General Counsel, (512) 370-1339

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