• Sec. 1: Amendments to CPRC, Ch. 88
• Sec. 2: Amendments to IC, Sec.6 Art. 21.58A subsec.(b)&(c) PREEMPTED
• Sec. 3: Addition to IC, Sec. 6A PREEMPTED
• Sec. 4: Addition to IC, Sec. 8(f)
• Sec. 5: Amendments to HMO act, Art.20A.09 subsec.(e) PREEMPTED
• Sec. 6: Amendments to HMO act, Art.20A.12
• Sec. 7: Amendments to HMO act, Art.20A.12A PREEMPTED
• Sec. 8: Amendments to IC, Art. 21.58C
• Sec. 9: Eff. date of Sec.1
• Sec. 10: Application of Sec.s 2-8
• Sec. 11: Effective date
• Sec. 12: Suspension of 3 reading rule

CHAPTER 88. HEALTH CARE LIABILITY
Sec. 88.001. DEFINITIONS. In this chapter:

(1) "Appropriate and medically necessary"

means the standard for health care services as determined by physicians and health care providers in accordance with the prevailing practices and standards of the medical profession and community.

(2) "Enrollee"

means an individual who is enrolled in a health care plan, including covered dependents.

(3) "Health care plan"

means any plan whereby any person undertakes to provide, arrange for, pay for, or reimburse any part of the cost of any health care services.

(4) "Health care provider"

means a person or entity as defined in Section 1.03(a)(3), Medical Liability and Insurance Improvement Act of Texas (Article 4590i, Vernon's Texas Civil Statutes).

(5) "Health care treatment decision"

means a determination made when medical services are actually provided by the health care plan and a decision which affects the quality of the diagnosis, care, or treatment provided to the plan's insureds or enrollees.

(6) "Health insurance carrier"

means an authorized insurance company that issues policies of accident and sickness insurance under Section 1, Chapter 397, Acts of the 54th Legislature, 1955 (Article 3.70-1, Vernon's Texas Insurance Code).

(7) "Health maintenance organization"

means an organization licensed under the Texas Health Maintenance Organization Act (Chapter 20A, Vernon's Texas Insurance Code).

(8) "Managed care entity"

means any entity which delivers, administers, or assumes risk for health care services with systems or techniques to control or influence the quality, accessibility, utilization, or costs and prices of such services to a defined enrollee population, but does not include an employer purchasing coverage or acting on behalf of its employees or the employees of one or more subsidiaries or affiliated corporations of the employer or a pharmacy licensed by the State Board of Pharmacy.

(9) "Physician"

means:
(A) an individual licensed to practice medicine in this state;
(B) a professional association organized under the Texas Professional Association Act (Article 1528f, Vernon's Texas Civil Statutes) or a nonprofit health corporation certified under Section 5.01, Medical Practice Act (Article 4495b, Vernon's Texas Civil Statutes); or
(C) another person wholly owned by physicians.

(10) "Ordinary care"

means, in the case of a health insurance carrier, health maintenance organization, or managed care entity, that degree of care that a health insurance carrier, health maintenance organization, or managed care entity of ordinary prudence would use under the same or similar circumstances. In the case of a person who is an employee, agent, ostensible agent, or representative of a health insurance carrier, health maintenance organization, or managed care entity, "ordinary care" means that degree of care that a person of ordinary prudence in the same profession, specialty, or area of practice as such person would use in the same or similar circumstances.

Sec. 88.002. APPLICATION.
(a) A health insurance carrier,health maintenance organization, or other managed care entity for ahealth care plan has the duty to exercise ordinary care when makinghealth care treatment decisions and is liable for damages for harmto an insured or enrollee proximately caused by its failure toexercise such ordinary care.
(b) A health insurance carrier, health maintenance organization, or other managed care entity for a health care planis also liable for damages for harm to an insured or enrolleeproximately caused by the health care treatment decisions made byits:
(1) employees;
(2) agents;
(3) ostensible agents; or
(4) representatives who are acting on its behalf and over whom it has the right to exercise influence or control or has actually exercised influence or control which result in the failure to exercise ordinary care.
(c) It shall be a defense to any action asserted against ahealth insurance carrier, health maintenance organization, or othermanaged care entity for a health care plan that:
(1) neither the health insurance carrier, healthmaintenance organization, or other managed care entity, nor anyemployee, agent, ostensible agent, or representative for whoseconduct such health insurance carrier, health maintenanceorganization, or other managed care entity is liable underSubsection (b), controlled, influenced, or participated in thehealth care treatment decision; and
(2) the health insurance carrier, health maintenanceorganization, or other managed care entity did not deny or delaypayment for any treatment prescribed or recommended by a providerto the insured or enrollee.
(d) The standards in Subsections (a) and (b) create noobligation on the part of the health insurance carrier, healthmaintenance organization, or other managed care entity to provideto an insured or enrollee treatment which is not covered by thehealth care plan of the entity.
(e) This chapter does not create any liability on the partof an employer, an employer group purchasing organization, or apharmacy licensed by the State Board of Pharmacy that purchasescoverage or assumes risk on behalf of its employees.
(f) A health insurance carrier, health maintenanceorganization, or managed care entity may not remove a physician orhealth care provider from its plan or refuse to renew the physicianor health care provider with its plan for advocating on behalf ofan enrollee for appropriate and medically necessary health care forthe enrollee.
(g) A health insurance carrier, health maintenanceorganization, or other managed care entity may not enter into acontract with a physician, hospital, or other health care provideror pharmaceutical company which includes an indemnification or holdharmless clause for the acts or conduct of the health insurancecarrier, health maintenance organization, or other managed careentity. Any such indemnification or hold harmless clause in anexisting contract is hereby declared void.
(h) Nothing in any law of this state prohibiting a healthinsurance carrier, health maintenance organization, or othermanaged care entity from practicing medicine or being licensed topractice medicine may be asserted as a defense by such healthinsurance carrier, health maintenance organization, or othermanaged care entity in an action brought against it pursuant tothis section or any other law.
(i) In an action against a health insurance carrier, healthmaintenance organization, or managed care entity, a finding that aphysician or other health care provider is an employee, agent,ostensible agent, or representative of such health insurancecarrier, health maintenance organization, or managed care entityshall not be based solely on proof that such person's name appearsin a listing of approved physicians or health care providers madeavailable to insureds or enrollees under a health care plan.
(j) This chapter does not apply to workers' compensationinsurance coverage as defined in Section 401.011, Labor Code.
(k) An enrollee who files an action under this chapter shallcomply with the requirements of Section 13.01, Medical Liabilityand Insurance Improvement Act of Texas (Article 4590i, Vernon'sTexas Civil Statutes), as it relates to cost bonds, deposits, andexpert reports.

Sec. 88.003. LIMITATIONS ON CAUSE OF ACTION.
(a) A personmay not maintain a cause of action under this chapter against ahealth insurance carrier, health maintenance organization, or othermanaged care entity that is required to comply with the utilizationreview requirements of Article 21.58A, Insurance Code, or the TexasHealth Maintenance Organization Act (Chapter 20A, Vernon's TexasInsurance Code), unless the affected insured or enrollee or theinsured's or enrollee's representative:
(1) has exhausted the appeals and review applicableunder the utilization review requirements; or
(2) before instituting the action:
(A) gives written notice of the claim asprovided by Subsection (b); and
(B) agrees to submit the claim to a review by anindependent review organization under Article 21.58A, InsuranceCode, as required by Subsection (c).
(b) The notice required by Subsection (a)(2)(A) must bedelivered or mailed to the health insurance carrier, healthmaintenance organization, or managed care entity against whom theaction is made not later than the 30th day before the date theclaim is filed.
(c) The insured or enrollee or the insured's or enrollee'srepresentative must submit the claim to a review by an independentreview organization if the health insurance carrier, healthmaintenance organization, or managed care entity against whom theclaim is made requests the review not later than the 14th day afterthe date notice under Subsection (a)(2)(A) is received by thehealth insurance carrier, health maintenance organization, ormanaged care entity. If the health insurance carrier, healthmaintenance organization, or managed care entity does not requestthe review within the period specified by this subsection, theinsured or enrollee or the insured's or enrollee's representativeis not required to submit the claim to independent review beforemaintaining the action.
(d) Subject to Subsection (e), if the enrollee has notcomplied with Subsection (a), an action under this section shallnot be dismissed by the court, but the court may, in itsdiscretion, order the parties to submit to an independent review ormediation or other nonbinding alternative dispute resolution andmay abate the action for a period of not to exceed 30 days for suchpurposes. Such orders of the court shall be the sole remedyavailable to a party complaining of an enrollee's failure to complywith Subsection (a).
(e) The enrollee is not required to comply with Subsection(c) and no abatement or other order pursuant to Subsection (d) forfailure to comply shall be imposed if the enrollee has filed apleading alleging in substance that:
(1) harm to the enrollee has already occurred becauseof the conduct of the health insurance carrier, health maintenanceorganization, or managed care entity or because of an act oromission of an employee, agent, ostensible agent, or representativeof such carrier, organization, or entity for whose conduct it isliable under Section 88.002(b); and
(2) the review would not be beneficial to theenrollee, unless the court, upon motion by a defendant carrier,organization, or entity finds after hearing that such pleading wasnot made in good faith, in which case the court may enter an orderpursuant to Subsection (d).
(f) If the insured or enrollee or the insured's orenrollee's representative seeks to exhaust the appeals and reviewor provides notice, as required by Subsection (a), before thestatute of limitations applicable to a claim against a managed careentity has expired, the limitations period is tolled until thelater of:
(1) the 30th day after the date the insured orenrollee or the insured's or enrollee's representative hasexhausted the process for appeals and review applicable under theutilization review requirements; or
(2) the 40th day after the date the insured orenrollee or the insured's or enrollee's representative gives noticeunder Subsection (a)(2)(A).
(g) This section does not prohibit an insured or enrolleefrom pursuing other appropriate remedies, including injunctiverelief, a declaratory judgment, or relief available under law, ifthe requirement of exhausting the process for appeal and reviewplaces the insured's or enrollee's health in serious jeopardy.

SECTION 2. Section 6, Article 21.58A, Insurance Code, isamended by amending Subsection (b) and adding Subsection (c) toread as follows:
(b) The procedures for appeals shall be reasonable and shallinclude the following:
(1) a provision that an enrollee, a person acting onbehalf of the enrollee, or the enrollee's physician or health careprovider may appeal the adverse determination and shall beprovided, on request, a clear and concise statement of the clinicalbasis for the adverse determination;
(2) a list of documents needed to be submitted by theappealing party to the utilization review agent for the appeal;
(3) a provision that appeal decisions shall be made bya physician, provided that, if the appeal is denied and within 10working days the health care provider sets forth in writing goodcause for having a particular type of a specialty provider reviewthe case, the denial shall be reviewed by a health care provider inthe same or similar specialty as typically manages the medicalcondition, procedure, or treatment under discussion for review ofthe adverse determination;
(4) in addition to the written appeal, a method for anexpedited appeal procedure for emergency care denials and denialsof continued stays for hospitalized patients, which shall include ahealth care provider who has not previously reviewed the case; suchappeal must be completed no later than one working day followingthe day on which the appeal, including all information necessary tocomplete the appeal, is made to the utilization review agent; and
(5) written notification to the appealing party of thedetermination of the appeal, as soon as practical, but in no caselater than the 30th day after the date the utilization agentreceives [30 days after receiving all the required documentationof] the appeal. If the appeal is denied, the written notificationshall include a clear and concise statement of:
(A) the clinical basis for the appeal's denial;
(B) [and] the specialty of the physician makingthe denial; and
(C) notice of the appealing party's right toseek review of the denial by an independent review organizationunder Section 6A of this article and the procedures for obtainingthat review.
(c) Notwithstanding any other law, in a circumstanceinvolving an enrollee's life-threatening condition, the enrollee isentitled to an immediate appeal to an independent revieworganization as provided by Section 6A of this article and is notrequired to comply with procedures for an internal review of theutilization review agent's adverse determination. For purposes ofthis section, "life-threatening condition" means a disease or othermedical condition with respect to which death is probable unlessthe course of the disease or condition is interrupted.

SECTION 3. Article 21.58A, Insurance Code, is amended byadding Section 6A to read as follows:
Sec. 6A. INDEPENDENT REVIEW OF ADVERSE DETERMINATIONS. Autilization review agent shall:
(1) permit any party whose appeal of an adversedetermination is denied by the utilization review agent to seekreview of that determination by an independent review organizationassigned to the appeal in accordance with Article 21.58C of thiscode;
(2) provide to the appropriate independent revieworganization not later than the third business day after the datethat the utilization review agent receives a request for review acopy of:
(A) any medical records of the enrollee that arerelevant to the review;
(B) any documents used by the plan in making thedetermination to be reviewed by the organization;
(C) the written notification described bySection 6(b)(5) of this article;
(D) any documentation and written informationsubmitted to the utilization review agent in support of the appeal;and
(E) a list of each physician or health careprovider who has provided care to the enrollee and who may havemedical records relevant to the appeal;
(3) comply with the independent review organization'sdetermination with respect to the medical necessity orappropriateness of health care items and services for an enrollee;and
(4) pay for the independent review.

SECTION 4. Section 8, Article 21.58A, Insurance Code, isamended by adding Subsection (f) to read as follows:
(f) Confidential information in the custody of a utilizationreview agent may be provided to an independent review organization,subject to rules and standards adopted by the commissioner underArticle 21.58C of this code.

SECTION 5. Subdivision (3), Subsection (a), Section 9, TexasHealth Maintenance Organization Act (Article 20A.09, Vernon's TexasInsurance Code), is amended to read as follows:
(3) An evidence of coverage shall contain:
(A) no provisions or statements which areunjust, unfair, inequitable, misleading, deceptive, which encouragemisrepresentation, or which are untrue, misleading, or deceptive asdefined in Section 14 of this Act; and
(B) a clear and complete statement, if acontract, or a reasonably complete facsimile, if a certificate, of:
(i) the medical, health care services, orsingle health care service and the issuance of other benefits, ifany, to which the enrollee is entitled under the health care planor single health care service plan;
(ii) any limitation on the services, kindsof services, benefits, or kinds of benefits to be provided,including any deductible or co-payment feature;
(iii) where and in what manner informationis available as to how services may be obtained; and
(iv) a clear and understandabledescription of the health maintenance organization's methods forresolving enrollee complaints, including the enrollee's right toappeal denials of an adverse determination, as that term is definedby Section 12A of this Act, to an independent review organizationand the procedures for making an appeal to an independent revieworganization. Any subsequent changes may be evidenced in aseparate document issued to the enrollee.

SECTION 6. Section 12, Texas Health Maintenance OrganizationAct (Article 20A.12, Vernon's Texas Insurance Code), is amended toread as follows:
Sec. 12. COMPLAINT SYSTEM. (a) Every health maintenanceorganization shall establish and maintain a complaint system toprovide reasonable procedures for the resolution of oral andwritten complaints initiated by enrollees concerning health careservices.
(b) The commissioner [or board] may examine the [such]complaint system.

SECTION 7. The Texas Health Maintenance Organization Act(Chapter 20A, Vernon's Texas Insurance Code) is amended by addingSection 12A to read as follows: Sec. 12A. REVIEW OF ADVERSE DETERMINATIONS. (a) Thecomplaint system required by Section 12 of this Act must include:
(1) notification to the enrollee of the enrollee'sright to appeal an adverse determination to an independent revieworganization;
(2) notification to the enrollee of the procedures forappealing an adverse determination to an independent revieworganization; and
(3) notification to an enrollee who has alife-threatening condition of the enrollee's right to immediatereview by an independent review organization and the procedures toobtain that review.
(b) The provisions of Article 21.58A, Insurance Code, thatrelate to independent review apply to a health maintenanceorganization under this section as if the health maintenanceorganization were a utilization review agent.
(c) In this section:
(1) "Adverse determination" means determination by ahealth maintenance organization that the health care servicesfurnished or proposed to be furnished to an enrollee are notmedically necessary.
(2) "Independent review organization" means anorganization selected as provided under Article 21.58C, InsuranceCode.
(3) "Life-threatening condition" has the meaningassigned by Section 6, Article 21.58A, Insurance Code.

SECTION 8. Subchapter E, Chapter 21, Insurance Code, isamended by adding Article 21.58C to read as follows:
Art. 21.58C. STANDARDS FOR INDEPENDENT REVIEW ORGANIZATIONS
Sec. 1. DEFINITIONS. In this article:
(1) "Life-threatening condition" has the meaningassigned by Section 6, Article 21.58A of this code.
(2) "Payor" has the meaning assigned by Section 2,Article 21.58A of this code.
Sec. 2. CERTIFICATION AND DESIGNATION OF INDEPENDENT REVIEWORGANIZATIONS. (a) The commissioner shall:
(1) promulgate standards and rules for:
(A) the certification, selection, and operationof independent review organizations to perform independent reviewdescribed by Section 6, Article 21.58A of this code; and
(B) the suspension and revocation of thecertification;
(2) designate annually each organization that meetsthe standards as an independent review organization;
(3) charge payors fees in accordance with this articleas necessary to fund the operations of independent revieworganizations; and
(4) provide ongoing oversight of the independentreview organizations to ensure continued compliance with thisarticle and the standards and rules adopted under this article.
(b) The standards required by Subsection (a)(1) of thissection must ensure:
(1) the timely response of an independent revieworganization selected under this article;
(2) the confidentiality of medical records transmittedto an independent review organization for use in independentreviews;
(3) the qualifications and independence of each healthcare provider or physician making review determinations for anindependent review organization;
(4) the fairness of the procedures used by anindependent review organization in making the determinations; and
(5) timely notice to enrollees of the results of theindependent review, including the clinical basis for thedetermination.
(c) The standards adopted under Subsection (a)(1) of thissection must include standards that require each independent revieworganization to make its determination:
(1) not later than the earlier of:
(A) the 15th day after the date the independentreview organization receives the information necessary to make thedetermination; or
(B) the 20th day after the date the independentreview organization receives the request that the determination bemade; and
(2) in the case of a life-threatening condition, notlater than the earlier of:
(A) the fifth day after the date the independentreview organization receives the information necessary to make thedetermination; or
(B) the eighth day after the date theindependent review organization receives the request that thedetermination be made.
(d) To be certified as an independent review organizationunder this article, an organization must submit to the commissioneran application in the form required by the commissioner. Theapplication must include:
(1) for an applicant that is publicly held, the nameof each stockholder or owner of more than five percent of any stock or options;
(2) the name of any holder of bonds or notes of the applicant that exceed $100,000;
(3) the name and type of business of each corporation or other organization that the applicant controls or is affiliatedwith and the nature and extent of the affiliation or control;
(4) the name and a biographical sketch of each director, officer, and executive of the applicant and any entity listed under Subdivision (3) of this subsection and a descriptionof any relationship the named individual has with:
(A) a health benefit plan;
(B) a health maintenance organization;
(C) an insurer;
(D) a utilization review agent;
(E) a nonprofit health corporation;
(F) a payor;
(G) a health care provider; or
(H) a group representing any of the entitiesdescribed by Paragraphs (A) through (G) of this subdivision;
(5) the percentage of the applicant's revenues thatare anticipated to be derived from reviews conducted under Section6A, Article 21.58A of this code;
(6) a description of the areas of expertise of thehealth care professionals making review determinations for the applicant; and
(7) the procedures to be used by the independentreview organization in making review determinations with respect toreviews conducted under Section 6A, Article 21.58A of this code.
(e) The independent review organization shall annually submit the information required by Subsection (d) of this section.If at any time there is a material change in the informationincluded in the application under Subsection (d) of this section,the independent review organization shall submit updatedinformation to the commissioner.
(f) An independent review organization may not be asubsidiary of, or in any way owned or controlled by, a payor or atrade or professional association of payors.
(g) An independent review organization conducting a reviewunder Section 6A, Article 21.58A of this code is not liable fordamages arising from the determination made by the organization.This subsection does not apply to an act or omission of theindependent review organization that is made in bad faith or thatinvolves gross negligence.

SECTION 9. Chapter 88, Civil Practice and Remedies Code, asadded by this Act, applies only to a cause of action that accrueson or after the effective date of this Act. An action that accruesbefore the effective date of this Act is governed by the lawapplicable to the action immediately before the effective date ofthis Act, and that law is continued in effect for that purpose.

SECTION 10.
(a) The change in law made by Sections 2through 4 and 6 through 8 of this Act applies only to an adversedetermination of a utilization review agent or health maintenanceorganization made on or after the effective date of this Act.
(b) The change in law made by Section 5 of this Act toSection 9, Texas Health Maintenance Organization Act (Article20A.09, Vernon's Texas Insurance Code), applies only to an evidenceof coverage that is delivered, issued for delivery, or renewed onor after January 1, 1998. An evidence of coverage that isdelivered, issued for delivery, or renewed before January 1, 1998,is governed by the law as it existed immediately before theeffective date of this Act, and that law is continued in effect forthat purpose.

SECTION 11. This Act takes effect September 1, 1997.

SECTION 12. The importance of this legislation and thecrowded condition of the calendars in both houses create anemergency and an imperative public necessity that theconstitutional rule requiring bills to be read on three severaldays in each house be suspended, and this rule is hereby suspended. S.B. No. 386

_______________________________     _______________________________    President of the Senate              Speaker of the House      I hereby certify that S.B. No. 386 passed the Senate onMarch 17, 1997, by a viva-voce vote; and that the Senate concurredin House amendments on May 12, 1997, by the following vote:Yeas 25, Nays 5.                                    _______________________________                                        Secretary of the Senate      I hereby certify that S.B. No. 386 passed the House, withamendments, on May 8, 1997, by a non-record vote.                                    _______________________________                                        Chief Clerk of the HouseApproved:_______________________________            Date_______________________________          Governor