An Act concerning insurance; health maintenance organizations; amending K.S.A. 40-204, 40-205, 40-205a, 40-239, 40-240, 40-3202, 40-3203, 40-3204, 40-3209, 40-3225, 40-3227 and 40-3302 and repealing the existing sections.

Be it enacted by the Legislature of the State of Kansas:

Section 1. K.S.A. 40-204 is hereby amended to read as follows: 40- 204. It shall be unlawful for any insurance company or health maintenance organization, its agents or representatives, to offer the stock of such com- pany for sale unless it shall have first obtained from the commissioner of insurance a permit authorizing and providing the terms of such sale. Any share of stock issued by an insurance company or health maintenance organization without a permit of the commissioner authorizing the same in effect at the time of issue, shall be void. Any share of stock issued under a permit of the commissioner shall be void unless its provisions conform to the provisions, if any, required by the permit.

Sec. 2. K.S.A. 40-205 is hereby amended to read as follows: 40-205. Each insurance company or health maintenance organization applicant for a permit to offer its stock for sale shall file with the commissioner an application therefor, verified by its president and secretary. The appli- cation shall set forth:

(a) The name of the company and the address of its principal office.

(b) The names and addresses of its officers.

(c) An itemized account of its financial condition, including the amount and character of its assets and liabilities.

(d) A detailed statement of the plan by which it proposes to offer its stock for sale and if the company has written no business in this state within the three years last preceding the date of the application, a detailed statement of any plan upon which it proposes to transact business in this state.

(e) A description of the stock it proposes to issue.

(f) Copies of any contracts, agreements or documents of any nature which have been made or are proposed to be made by the company or by those persons managing it or owning more than 10% of its stock which concern the stock to be offered.

(g) A copy of any prospectus or advertisement or other description of its operation proposed to be used in connection with the offer of stock.

(h) Such additional information concerning the company, its condi- tion and affairs as the commissioner requires.

Upon the filing of such application the commissioner shall examine it and the papers and documents filed therewith. The commissioner may, if deemed advisable, cause to be made a detailed examination, audit and investigation of the applicant and its affairs.

The commissioner shall issue a permit if the commissioner finds that:

(1) The plan by which the applicant proposes to offer its stock and transact its business is not unfair, unjust or inequitable.

(2) The applicant company intends to fairly and honestly transact its business.

[aw(3) The stock the applicant company proposes to issue and the meth- ods to be used by it are not such as will work a fraud upon the purchaser thereof, or upon other stockholders or policyholders of the applicant com- pany.

Otherwise, the commissioner shall issue an order denying the appli- cation and notify the applicant in writing of such decision. The commis- sioner may prescribe in the permit the amounts, considerations, terms and conditions governing the issue and disposal of the stock and the per- mit shall authorize such issue and disposal only in accordance with its provisions. The commissioner may impose conditions requiring the de- posit in escrow of stock and the impoundment of the proceeds from the sale thereof, limiting the expense in connection with the sale thereof, and otherwise requiring such method of dealing as the commissioner deems reasonable and either necessary or advisable to insure the disposition of the proceeds of such stock in the manner and for the purposes provided in the permit.

Every permit shall recite in bold type that the issuance thereof is per- missive only and does not constitute a recommendation or endorsement of the stock permitted to be issued. The commissioner shall not issue a permit for the sale of any stock of a domestic insurer or health mainte- nance organization in any case where the commissioner finds that the expense of organization and promotion of the company or the expense of the proposed sale of stock will exceed 12 1/2% of the total amount actually paid for the capital stock.

Every insurer authorized by the commissioner to sell its stock shall thereafter, at such times and in such form as the commissioner requires, make and file in the commissioner's office a report setting forth:

(a) The stock sold by it under the authority of any permit issued by the commissioner.;

(b) the proceeds derived therefrom.;

(c) the disposition of such proceeds.; and

(d) such other information concerning its property, officers, or affairs, and relating to or affecting the value of such securities as the commis- sioner requires.

The commissioner may from time to time for cause order the amend- ment, alteration or suspension of any permit granted pursuant to this act. After issuing such order the commissioner may on the commissioner's motion, or if within 15 days requested in writing by the company affected the commissioner shall conduct a hearing in accordance with the provi- sions of the Kansas administrative procedure act. If upon the completion of such hearing the commissioner finds that cause for such order still exists, the commissioner may continue the order in effect or if the order has been one of suspension the commissioner may revoke the permit. Otherwise the prior order shall be vacated. The commissioner of insur- ance shall be specifically authorized to adopt such rules and regulations as are reasonable and necessary to carry out the purposes and provisions of this act.

Sec. 3. K.S.A. 40-205a is hereby amended to read as follows: 40- 205a. No person shall do any act toward selling the stock of any insurance company or health maintenance organization unless he or she shall first obtain such person first obtains from the commissioner of insurance writ- ten authority to engage in the business of selling the stock of said such company. Such applicant shall first be appointed in writing by the pres- ident or secretary of the company for whom he or she which such appli- cant intends to sell stock. The applicant for such license shall file with the commissioner of insurance his or her the applicant's written appli- cation for a license authorizing him or her the applicant to engage in the business of selling such stock. The applicant shall make sworn answers to such interrogatories as the commissioner of insurance shall require. The fee charged for the issuance of such license shall be fifty cents (50 cent) $100 and shall be paid to the commissioner of insurance by the company re- questing such license.

Sec. 4. K.S.A. 40-239 is hereby amended to read as follows: 40-239. An insurance agent is hereby defined to be an individual, corporation, association, partnership or other legal entity authorized in writing, by any insurance company or health maintenance organization lawfully qualified to transact the business of insurance, suretyship or indemnity in this state or authorized to operate as a health maintenance organization in this state, to negotiate or effect contracts of insurance, suretyship or indemnity on behalf of any such insurance company or health maintenance organi- zation; or any member of a partnership or association, or any stockholder, officer or agent of a corporation, permitted by law to negotiate or effect such contracts, where such partnership, association or corporation holds a direct agency appointment from any insurance company or health main- tenance organization. All such agents shall thereby become liable to all the duties, requirements, liabilities and penalties as provided in this code.

Sec. 5. K.S.A. 40-240 is hereby amended to read as follows: 40-240. (a) Any person desiring as agent to engage in the insurance business, as herein set out, shall apply to the commissioner of insurance of this state, in the manner hereinafter prescribed, for an insurance agent's license, authorizing such agent to engage in and transact such business. The ap- plicant for such license shall file with the commissioner of insurance such applicant's written application for a license authorizing the applicant to engage in the insurance business and the applicant shall make sworn answers to such interrogatories as the commissioner of insurance may require on uniform forms and supplements prepared by the commis- sioner. A nonrefundable fee in the amount of $30 shall accompany such application. Such applicant, if an individual, shall establish:

(1) That the applicant is a graduate of an accredited four-year high school or its equivalent. This requirement shall not apply to any person holding a valid agent's license as of July 1, 1971, or a full-time student enrolled in an accredited high school in this state while and to the extent such student is participating in an insurance project sponsored by a bona fide junior achievement program; and

(2) that the applicant is of good business reputation and is worthy of a license.

(b) Corporations, associations, partnerships, sole proprietorships and other legal entities acting as insurance agents and holding a direct agency appointment from an insurance company or companies or health main- tenance organization are required to obtain an insurance agent's license. Application for such license shall be made to the commissioner on a form prescribed by such commissioner. Before granting the license, the com- missioner shall determine that:

(1) Each officer, director, partner and employee of the applicant who is acting as an insurance agent is licensed as an insurance agent;

(2) the applicant has disclosed to the insurance department all offi- cers, directors and partners whether or not they are licensed as insurance agents;

(3) the applicant has disclosed to the insurance department all offi- cers, directors, partners and employees who are licensed as insurance agents; and

(4) the applicant has designated a licensed officer, employee, partner or other person to be responsible for the organization's compliance with the insurance laws and rules and regulations of this state.

(c) The insurance department may require any documents reasonably necessary to verify the information contained in the application.

(d) (1) Agents licensed pursuant to subsection (b) shall advise the commissioner of any officers, directors, partners or employees who are licensed as individual insurance agents and are not disclosed at the time application is made for a license within 30 working days of their affiliation with the licensee. Failure to provide the commissioner with such infor- mation shall subject the licensee to a monetary penalty of $10 per day for each working day the required information is late subject to a maximum of $50 per person per licensing year.

(2) Officers, directors, partners or employees disclosed at the time of the original application or reported thereafter whose affiliation with the licensee is terminated shall be reported to the commissioner within 30 days of the effective date of termination. Failure to report such termi- nation shall subject the licensee to the penalty prescribed in paragraph (1) of this subsection.

Sec. 6. K.S.A. 40-3202 is hereby amended to read as follows: 40- 3202. As used in this act:

(a) ``Commissioner'' means the commissioner of insurance of the state of Kansas.

(b) ``Basic health care services'' means but is not limited to usual physician, hospitalization, laboratory, x-ray, emergency and preventive services and out-of-area coverage.

(c) ``Capitated basis'' means a fixed per member per month payment or percentage of premium payment wherein the provider assumes risk for the cost of contracted services without regard to the type, value or fre- quency of services provided. For purposes of this definition, capitated basis includes the cost associated with operating staff model facilities.

(d) ``Certificate of coverage'' means a statement of the essential fea- tures and services of the health maintenance organization coverage which is given to the subscriber by the health maintenance organization or by the group contract holder.

(e) ``Copayment'' means an amount an enrollee must pay in order to receive a specific service which is not fully prepaid.

(f) ``Deductible'' means an amount an enrollee is responsible to pay out-of-pocket before the health maintenance organization begins to pay the costs associated with treatment.

(c) (g) ``Director'' means the secretary of health and environment.

(h) ``Disability'' means an injury or illness that results in a substantial physical or mental limitation in one or more major life activities such as working or independent activities of daily living that a person was able to do prior to the injury or illness.

(d) (i) ``Enrollee'' means a person who has entered into a contractual arrangement or on whose behalf a contractual arrangement has been entered into with a health maintenance organization for health care serv- ices.

(j) ``Grievance'' means a written complaint submitted in accordance with the health maintenance organization's formal grievance procedure by or on behalf of the enrollee regarding any aspect of the health main- tenance organization relative to the enrollee.

(k) ``Group contract'' means a contract for health care services which by its terms limits eligibility to members of a specified group. The group contract may include coverage for dependents.

(l) ``Group contract holder'' means the person to which a group con- tract has been issued.

(e) (m) ``Health care services'' means basic health care services and other services, medical equipment and supplies which may include, but are not limited to, medical, surgical and dental care; psychological, ob- stetrical, osteopathic, optometric, optic, podiatric, nursing, occupational therapy services, physical therapy services, chiropractic services and phar- maceutical services; health education, preventive medical, rehabilitative and home health services; inpatient and outpatient hospital services, ex- tended care, nursing home care, convalescent institutional care, labora- tory and ambulance services, appliances, drugs, medicines and supplies; and any other care, service or treatment for the prevention, control or elimination of disease, the correction of defects or the maintenance of the physical or mental well-being of human beings.

(f) (n) ``Health maintenance organization'' means an organization which:

(1) Provides or otherwise makes available to enrollees health care services, including at a minimum those basic health care services which are determined by the commissioner to be generally available on an in- sured or prepaid basis in the geographic area served;

(2) is compensated, except for reasonable copayments, for the pro- vision of basic health care services to enrollees solely on a predetermined periodic rate basis;

(3) provides physician services directly through physicians who are either employees or partners of such organization or under arrangements with a physician or any group of physicians or under arrangements as an independent contractor with a physician or any group of physicians;

(4) is responsible for the availability, accessibility and quality of the health care services provided or made available.

(o) ``Individual contract'' means a contract for health care services issued to and covering an individual. The individual contract may include dependents of the subscriber.

(p) ``Individual practice association'' means a partnership, corpora- tion, association or other legal entity which delivers or arranges for the delivery of basic health care services and which has entered into a services arrangement with persons who are licensed to practice medicine and sur- gery, dentistry, chiropractic, pharmacy, podiatry, optometry or any other health profession and a majority of whom are licensed to practice medi- cine and surgery. Such an arrangement shall provide:

(1) That such persons shall provide their professional services in ac- cordance with a compensation arrangement established by the entity; and

(2) to the extent feasible for the sharing by such persons of medical and other records, equipment, and professional, technical and adminis- trative staff.

(q) ``Medical group'' or ``staff model'' means a partnership, association or other group:

(1) Which is composed of health professionals licensed to practice medicine and surgery and of such other licensed health professionals, including but not limited to dentists, chiropractors, pharmacists, optom- etrists and podiatrists as are necessary for the provision of health services for which the group is responsible;

(2) a majority of the members of which are licensed to practice med- icine and surgery; and

(3) the members of which: (A) As their principal professional activity over 50% individually and as a group responsibility are engaged in the coordinated practice of their profession for a health maintenance organ- ization; (B) pool their income and distribute it among themselves accord- ing to a prearranged salary or drawing account or other plan, or are salaried employees of the health maintenance organization; (C) share medical and other records and substantial portions of major equipment and of professional, technical and administrative staff; and (D) establish an arrangement whereby the enrollee's enrollment status is not known to the member of the group who provides health services to the enrollee.

(r) ``Net worth'' means the excess of assets over liabilities as deter- mined by the commissioner from the latest annual report filed pursuant to K.S.A. 40-3220 and amendments thereto.

(g) (s) ``Person'' means any natural or artificial person including but not limited to individuals, partnerships, associations, trusts or corpora- tions.

(t) ``Physician'' means a person licensed to practice medicine and sur- gery under the healing arts act.

(h) (u) ``Provider'' means any physician, hospital or other person which is licensed or otherwise authorized in this state to furnish health care services.

(i) (v) ``Uncovered expenditures'' means the costs of health care serv- ices that are covered by a health maintenance organization for which an enrollee would also be liable in the event of the organization's insolvency as determined by the commissioner from the latest annual statement filed pursuant to K.S.A. 40-3220 and amendments thereto.

(j) ``Net worth'' means the excess of assets over liabilities as deter- mined by the commissioner from the latest annual report filed pursuant to K.S.A. 40-3220 and amendments thereto.

Sec. 7. K.S.A. 40-3203 is hereby amended to read as follows: 40- 3203. (a) Except as otherwise provided by this act, it shall be unlawful for any person to provide health care services in the manner prescribed in subsection (f) (n) of K.S.A. 40-3202 and amendments thereto without first obtaining a certificate of authority from the commissioner.

(b) Applications for a certificate of authority shall be made in the form required by the commissioner and shall be verified by an officer or au- thorized representative of the applicant and shall set forth or be accom- panied by:

(1) A copy of the basic organizational documents of the applicant such as articles of incorporation, partnership agreements, trust agreements or other applicable documents;

(2) a copy of the bylaws, regulations or similar document, if any, reg- ulating the conduct of the internal affairs of the applicant;

(3) a list of the names, addresses and, official capacity with the or- ganization of and biographical information for all of the persons who are to be responsible for the conduct of its affairs, including all members of the governing body, the officers and directors in the case of a corporation and the partners or members in the case of a partnership or corporation;

(4) a sample or representative copy of any contract or agreement made or to be made between the health maintenance organization and any class of providers and a copy of any contract made or agreement made or to be made, excluding individual employment contracts or agree- ments, between third party administrators, marketing consultants or per- sons listed in subsection (3) and the health maintenance organization;

(4) (5) a statement generally describing the organization, its enroll- ment process, its operation, its quality assurance mechanism, its internal grievance procedures, the methods it proposes to use to offer its enrollees an opportunity to participate in matters of policy and operation, the ge- ographic area or areas to be served, the location and hours of operation of the facilities at which health care services will be regularly available to enrollees in the case of staff and group practices, the type and specialty of health care personnel and the number of personnel in each specialty category engaged to provide health care services in the case of staff and group practices, and a records system providing documentation of utili- zation rates for enrollees. In cases other than staff and group practices, the organization shall provide a list of names, addresses and telephone numbers of providers by specialty;

(5) (6) copies of all contract forms the organization proposes to offer enrollees together with a table of rates to be charged;

(6) (7) the following statements of the fiscal soundness of the organ- ization:

(A) Descriptions of financing arrangements for operational deficits and for developmental costs if operational one year or less;

(B) a copy of the most recent unaudited financial statements of the health maintenance organization;

(C) financial projections using an accrual accounting system with gen- erally accepted accounting principles for a minimum of three years from the anticipated date of certification and on a monthly basis from the date of certification through one year. If the health maintenance organization is expected to incur a deficit, projections shall be made for each deficit year and for one year thereafter. Financial projections shall include:

(i) Monthly statements of revenue and expense for the first year on a gross dollar as well as per-member-per-month basis, with quarters con- sistent with standard calendar year quarters;

(ii) quarterly statements of revenue and expense for each subsequent year;

(iii) a quarterly balance sheet; and

(iv) statement and justification of assumptions;

(7) (8) a description of the procedure to be utilized by a health main- tenance organization to provide for:

(A) Offering enrollees an opportunity to participate in matters of pol- icy and operation of the health maintenance organization;

(B) monitoring of the quality of care provided by such organization including, as a minimum, peer review; and

(C) resolving complaints and grievances initiated by enrollees;

(8) (9) a written irrevocable consent duly executed by such applicant, if the applicant is a nonresident, appointing the commissioner as the per- son upon whom lawful process in any legal action against such organiza- tion on any cause of action arising in this state may be served and that such service of process shall be valid and binding in the same extent as if personal service had been had and obtained upon said nonresident in this state;

(9) (10) a plan, in the case of group or staff practices, that will provide for maintaining a medical records system which is adequate to provide an accurate documentation of utilization by every enrollee, such system to identify clearly, at a minimum, each patient by name, age and sex and to indicate clearly the services provided, when, where, and by whom, the diagnosis, treatment and drug therapy, and in all other cases, evidence that contracts with providers require that similar medical records systems be in place;

(10) (11) evidence of adequate insurance coverage or an adequate plan for self-insurance to respond to claims for injuries arising out of the furnishing of health care; and

(11) (12) such other information as may be required by the commis- sioner to make the determinations required by K.S.A. 40-3204 and amendments thereto.

(c) The commissioner may promulgate rules and regulations the com- missioner deems necessary to the proper administration of this act to require a health maintenance organization, subsequent to receiving its certificate of authority to submit the information, modifications or amend- ments to the items described in subsection (b) to the commissioner prior to the effectuation of the modification or amendment or to require the health maintenance organization to indicate the modifications to the com- missioner. Any modification or amendment for which the approval of the commissioner is required shall be deemed approved unless disapproved within 30 days, except the commissioner may postpone the action for such further time, not exceeding an additional 30 days, as necessary for proper consideration.

Sec. 8. K.S.A. 40-3204 is hereby amended to read as follows: 40- 3204. (a) The commissioner shall issue a certificate of authority to notify any person filing an application for a certificate of authority within sixty (60) 60 days of such filing unless he notifies the applicant within such time that if such application is not complete or sufficient and the reasons therefor, or that payment of the fees required by K.S.A. 40-3213 and amendments thereto has not been made or that he the commissioner is not satisfied with the sufficiency of the information supplied pursuant to the provisions of K.S.A. 40-3203 and amendments thereto or that the organization has failed to demonstrate its ability to assure that health care services will be provided.

(b) The commissioner shall, within 60 days after the receipt of a com- pleted application and any prescribed fees, issue a certificate of authority to any person filing such application if the commissioner finds that:

(1) The persons responsible for the conduct of the affairs of the ap- plicant are competent, trustworthy and possess good reputations;

(2) any deficiencies identified by the commissioner in the application have been corrected;

(3) the health maintenance organization will effectively provide or arrange for the provision of basic health care services on a prepaid basis, through insurance or otherwise except to the extent of reasonable require- ments for copayments and/or deductibles; and

(4) the health maintenance organization is in compliance with K.S.A. 40-3227 and amendments thereto.

Sec. 9. K.S.A. 40-3209 is hereby amended to read as follows: 40- 3209. (a) All forms of group and individual certificates of coverage and contracts issued by the organization to enrollees or other marketing doc- uments purporting to describe the organization's health care services shall contain as a minimum:

(1) A complete description of the health care services and other ben- efits to which the enrollee is entitled;

(2) the locations of all facilities, the hours of operation and the serv- ices which are provided in each facility in the case of individual practice associations or medical staff and group practices, and, in all other cases, a list of providers by specialty with a list of addresses and telephone numbers;

(3) the financial responsibilities of the enrollee and the amount of any deductible, copayment or coinsurance required;

(4) all exclusions and limitations on services or any other benefits to be provided including any deductible or copayment feature and all re- strictions relating to pre-existing conditions;

(5) all criteria by which an enrollee may be disenrolled or denied re- enrollment;

(6) service priorities in case of epidemic, or other emergency condi- tions affecting demand for medical services;

(7) a provision that an enrollee or a covered dependent of an enrollee whose coverage under a health maintenance organization group contract has been terminated for any reason but who remains in the service area and who has been continuously covered by the health maintenance or- ganization for at least three months shall be entitled to obtain a converted contract or have such coverage continued under the group contract for a period of six months following which such enrollee or dependent shall be entitled to obtain a converted contract in accordance with the provisions of this section. The converted contract shall provide coverage at least equal to the conversion coverage options generally available from insurers or mutual nonprofit hospital and medical service corporations in the serv- ice area at the applicable premium cost. The group enrollee or enrollees shall be solely responsible for paying the premiums for the alternative coverage. The frequency of premium payment shall be the frequency customarily required by the health maintenance organization, mutual nonprofit hospital and medical service corporation or insurer for the pol- icy form and plan selected, except that the insurer, mutual nonprofit hospital and medical service corporation or health maintenance organi- zation shall require premium payments at least quarterly. The coverage shall be available to all enrollees of any group without medical under- writing. The requirement imposed by this subsection shall not apply to a contract which provides benefits for specific diseases or for accidental injuries only, nor shall it apply to any employee or member or such em- ployee's or member's covered dependents when:

(A) Such person was terminated for cause as permitted by the group contract approved by the commissioner;

(B) any discontinued group coverage was replaced by similar group coverage within 31 days; or

(C) the employee or member is or could be covered by any other insured or noninsured arrangement which provides expense incurred hos- pital, surgical or medical coverage and benefits for individuals in a group under which the person was not covered prior to such termination. Writ- ten application for the converted contract shall be made and the first premium paid not later than 31 days after termination of the group cov- erage or receipt of notice of conversion rights from the health mainte- nance organization, whichever is later, and shall become effective the day following the termination of coverage under the group contract. The health maintenance organization shall give the employee or member and such employee's or member's covered dependents reasonable notice of the right to convert at least once within 30 days of termination of coverage under the group contract. The group contract and certificates may include provisions necessary to identify or obtain identification of persons and notification of events that would activate the notice requirements and conversion rights created by this section but such requirements and rights shall not be invalidated by failure of persons other than the employee or member entitled to conversion to comply with any such provisions. In addition, the converted contract shall be subject to the provisions con- tained in paragraphs (2), (4), (5), (6), (7), (8), (9), (13), (14), (15), (16), (18), (19) and (20) of subsection (D) of K.S.A. 40-2209, and amendments thereto; and

(8) (A) group contracts shall contain a provision extending payment of such benefits until discharged or for a period not less than 31 days following the expiration date of the contract, whichever is earlier, for covered enrollees and dependents confined in a hospital on the date of termination; and

(B) a provision that coverage under any subsequent replacement con- tract that is intended to afford continuous coverage will commence im- mediately following expiration of any prior contract with respect to cov- ered services not provided pursuant to subparagraph (8)(A) of this subsection.; and

(9) an individual contract shall provide for a 10-day period for the enrollee to examine and return the contract and have the premium re- funded, but if services were received by the enrollee during the 10-day period, and the enrollee returns the contract to receive a refund of the premium paid, the enrollee must pay for such services.

(b) No health maintenance organization authorized under this act shall contract with any provider under provisions which require enrollees to guarantee payment, other than copayments and deductibles, to such provider in the event of nonpayment by the health maintenance organi- zation for any services which have been performed under contracts be- tween such enrollees and the health maintenance organization. Further, any contract between a health maintenance organization and a provider shall provide that if the health maintenance organization fails to pay for covered health care services as set forth in the contract between the health maintenance organization and its enrollee, the enrollee or covered dependents shall not be liable to any provider for any amounts owed by the health maintenance organization. If there is no written contract be- tween the health maintenance organization and the provider or if the written contract fails to include the above provision, the enrollee and dependents are not liable to any provider for any amounts owed by the health maintenance organization.

(c) No group or individual certificate of coverage or contract form or amendment to an approved certificate of coverage or contract form shall be issued unless it is filed with the commissioner. Such contract form or amendment shall become effective within 30 days of such filing unless the commissioner finds that such contract form or amendment does not comply with the requirements of this section.

(d) Every contract shall include a clear and understandable descrip- tion of the health maintenance organization's method for resolving en- rollee grievances.

(e) The provisions of subsections (A), (B) and (C) of K.S.A. 40-2209 and 40-2215 and amendments thereto shall apply to all contracts issued under this section, and the provisions of such sections shall apply to health maintenance organizations.

Sec. 10. K.S.A. 40-3225 is hereby amended to read as follows: 40- 3225. (a) Any director, officer or partner of a health maintenance organ- ization who receives, collects, disburses or invests funds in connection with the activities of such organization shall be responsible for such funds in a fiduciary relationship to the health maintenance organization.

(b) A health maintenance organization shall maintain in force a fi- delity bond or fidelity insurance on such employees and officers, directors and partners in the amount not less than $250,000 for each health main- tenance organization or a maximum of $5,000,000 in aggregate main- tained on behalf of health maintenance organizations owned by a common parent corporation, or such sum as may be prescribed by the commis- sioner.

Sec. 11. K.S.A. 40-3227 is hereby amended to read as follows: 40- 3227. (a) Unless otherwise provided below, each health maintenance or- ganization doing business in this state shall deposit with any organization or trustee acceptable to the commissioner through which a custodial or controlled account is utilized, cash, securities or any combination of these or other measures, for the benefit of all of the enrollees of the health maintenance organization, that are acceptable in the amount set forth in this section for the payment of uncovered expenditures in the amount of $150,000 for a medical group or staff model health maintenance organi- zation or $300,000 for an individual practice association.

(b) The amount for an organization that is beginning operation shall be the greater of: (1) Five percent of its estimated expenditures for health care services for its first year of operation; or

(2) twice its estimated average monthly uncovered expenditures for its first year of operation; or

(3) $25,000.

At the beginning of each succeeding year, unless not applicable, the health maintenance organization shall deposit with the organization or trustee, cash, securities or any combination of these or other measures acceptable to the commissioner, in an amount equal to 4% of its estimated annual uncovered expenditures for that year.

(c) Unless not applicable, an organization that is in operation on the effective date of this act shall make a deposit equal to the larger of: (1) One percent of the preceding 12 months' uncovered expenditures; or

(2) until April 1, 1989, $10,000. On and after April 1, 1989, organi- zations making deposits under this paragraph shall increase the amount of such deposit by an amount of not less than $1,500 per year until the deposit totals $25,000.

In the second year, if applicable, the amount of the additional deposit shall be equal to 2% of its estimated annual uncovered expenditures. In the third year, if applicable, the additional deposit shall be equal to 3% of its estimated annual uncovered expenditures for that year. In the fourth year and subsequent years, if applicable, the additional deposit shall be equal to 4% of its estimated annual uncovered expenditures for each year. Each year's estimate, after the first year of operation, shall reasonably reflect the prior year's operating experience and delivery arrangements.

(d) (b) The commissioner may waive any of the deposit requirements set forth in subsections (b) and (c) subsection (a) whenever satisfied that: (1) The organization has sufficient net worth and an adequate history of generating net income to assure its financial viability for the next year; or (2) the organization's performance and obligations are guaranteed by an organization with sufficient net worth and an adequate history of gener- ating net income; or (3) the assets of the organization or its contracts with insurers, hospital or medical service corporations, governments or other organizations are reasonably sufficient to assure the performance of its obligations.

(e) (c) When an organization has achieved a net worth not including land, buildings and equipment of at least $1,000,000 or has achieved a net worth including land, buildings and equipment of at least $5,000,000, the annual deposit requirement shall not apply.

(d) If the organization has a guaranteeing organization which has been in operation for at least five years and has a net worth not including land, buildings and equipment of at least $1,000,000 or which has been in operation for at least 10 years and has a net worth including land, buildings and equipment of at least $5,000,000, the annual deposit re- quirement shall not apply. If the guaranteeing organization is sponsoring more than one organization, the net worth requirement shall be increased by a multiple equal to the number of such organizations. This require- ment to maintain a deposit in excess of the deposit required of an accident and health insurer shall not apply during any time that the guaranteeing organization maintains for each organization it sponsors a net worth at least equal to the capital and surplus requirements set forth in article 11 of chapter 40 of the Kansas Statutes Annotated for an accident and health insurer.

(e) The deposit requirements imposed by this act shall not apply to health maintenance organizations not organized under the laws of this state to the extent an amount equal to or exceeding that required by this act has been deposited with the commissioner or an organization or trus- tee acceptable to the department of insurance of its state of domicile for the benefit of Kansas enrollees.

(f) All income from deposits shall belong to the depositing organi- zation and shall be paid to it as it becomes available. A health maintenance organization that has made a securities deposit may withdraw that deposit or any part thereof after making a substitute deposit of cash, securities or any combination of these or other measures of equal amount and value. Any securities shall be approved by the commissioner before being sub- stituted.

(g) In any year in which an annual deposit is not required of an or- ganization, at the organization's request the commissioner shall reduce the required, previously accumulated deposit by $100,000 for each $250,000 of net worth in excess of the amount that allows the organization not to make the annual deposit. If the amount of net worth no longer supports a reduction of its required deposit, the organization shall im- mediately redeposit $100,000 for each $250,000 of reduction in net worth, provided that its total deposit shall not exceed the maximum required under this section.

(g) The commissioner shall require that each health maintenance or- ganization have a plan for handling insolvency which allows for contin- uation of benefits for the duration of the contract period for which pre- miums have been paid and continuation of benefits to members who are confined on the date of insolvency in an inpatient facility until their dis- charge or expiration of benefits. In considering such a plan, the commis- sioner may require:

(1) Insurance to cover the expenses to be paid for continued benefits after an insolvency;

(2) provisions in provider contracts that obligate the provider to pro- vide services for the duration of the period after the health maintenance organization's insolvency for which premium payment has been made and until the enrollees' discharge from inpatient facilities;

(3) insolvency reserves;

(4) acceptable letters of credit; or

(5) any other arrangements to assure that benefits are continued as specified in this subsection (g).

New Sec./007006/A health maintenance organization shall provide in its certificate of coverage the procedures for resolving enrollee grievances. At a minimum, the certificate of coverage shall include the following provisions:

(a) The definition of a grievance;

(b) how, where and to whom the enrollee should file such enrollee's grievance; and

(c) that upon receiving notification of a grievance related for payment of a bill for medical services, the health maintenance organization shall:

(1) Acknowledge receipt of the grievance in writing within 10 working days unless it is resolved within that period of time;

(2) conduct a complete investigation of the grievance within 20 work- ing days after receipt of a grievance, unless the investigation cannot be completed within this period of time. If the investigation cannot be com- pleted within 20 working days after receipt of a grievance, the enrollee shall be notified in writing within 30 working days time, and every 30 working days after that, until the investigation is completed. The notice shall state the reasons for which additional time is needed for the inves- tigation;

(3) have within five working days after the investigation is completed, someone not involved in the circumstances giving rise to the grievance or its investigation decide upon the appropriate resolution of the griev- ance and notify the enrollee in writing of the decision of the health main- tenance organization regarding the grievance and of any right to appeal. The notice shall explain the resolution of the grievance and any right to appeal. The notice shall explain the resolution of the grievance in terms which are clear and specific; and

(4) notify, if the health maintenance organization has established a grievance advisory panel, the enrollee of the enrollee's right to request the grievance advisory panel to review the decision of the health main- tenance organization. This notice shall indicate that the grievance advisory panel is not obligated to conduct the review. This provision shall also state how, where and when the enrollee should make such enrollee's request for this review.

New Sec./007006/(a) A health maintenance organization that requires prior authorization before making payment for the treatment of medical emergency conditions, as defined by the health maintenance organization, shall provide enrollees with a toll-free telephone number answered 24 hours per day, seven days a week. At least one person with medical train- ing who is authorized to determine whether an emergency condition ex- ists shall be available 24 hours per day, seven days a week to make these determinations.

(b) A health maintenance organization shall not base its denial of payment for emergency medical services solely on the failure of the en- rollee to receive authorization prior to receiving the emergency medical service. The enrollee must notify the health maintenance organization of receipt of medical services for emergency conditions within 24 hours or as soon after that as is reasonably possible. Nothing shall require the health maintenance organization to authorize payment for any services provided during that 24 hour period, regardless of medical necessity, if those services do not otherwise constitute benefits under the certificate of coverage approved by the commissioner.

(c) If the participating provider is responsible for seeking prior au- thorization from the health maintenance organization before receiving payment for the treatment of emergency medical conditions and the en- rollee is eligible at the time when covered services are provided, then the enrollee will not be held financially responsible for payment for covered services if the prior authorization for emergency medical services has not been sought and received, other than for what the enrollee would oth- erwise be responsible, such as copayments and deductibles.

(d) All disputes between an enrollee and a health maintenance or- ganization arising under the provisions of this section shall be resolved by means of the grievance procedures established by the health mainte- nance organization.

New Sec./007006/A health maintenance organization shall establish rea- sonable procedures for assuring a transition of enrollees to physicians or health care providers and for continuity of treatment, including providing immediate notice to the enrollee and making available to the enrollee a current listing of preferred providers, in the event a provider's partici- pation in the plan is terminated for any reason. The plan shall include provisions for the continuation of care to enrollees for a period up to 90 days by a provider who is terminated from a network in those cases where the continuation of such care is medically necessary and in accordance with the dictates of medical prudence and where the enrollee has special circumstances such as a disability, a life threatening illness or is in the third trimester of pregnancy. The provisions for the continuation of care shall include guarantees that the enrollee will not be liable to the provider for any amounts owed for medical care other than any deductibles or copayment amounts specified in the certificate of coverage or other con- tract between the enrollee and the health maintenance organization. In the event the terminated provider is authorized to continue treating the enrollee pursuant to this subsection, the health maintenance organization shall have an obligation to pay the terminated provider at the previously contracted rate for services provided to the enrollee.

Sec./007006/K.S.A. 40-3302 is hereby amended to read as follows: 40- 3302. As used in this act, unless the context otherwise requires:

(a) ``Affiliate'' of, or person ``affiliated'' with, a specific person, means a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.

(b) ``Commissioner of insurance'' means the commissioner of insur- ance, the commissioner's deputies, or the insurance department, as ap- propriate.

(c) ``Control'' including the terms ``controlling,'' ``controlled by'' and ``under common control with'', means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or nonmanage- ment services, or otherwise, unless the power is the result of an official position with or corporate office held by the person. Control shall be presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing 10% or more of the voting securities of any other person. This presumption may be rebutted only for registration purposes pursuant to K.S.A. 40-3305 and amendments thereto by a showing made in the manner provided by sub- section (i) of K.S.A. 40-3305 and amendments thereto, that control does not exist in fact. The commissioner of insurance may determine, after a hearing in accordance with the provisions of the Kansas administrative procedure act, that control exists in fact, notwithstanding the absence of a presumption to that effect.

(d) ``Insurance holding company system'' means two or more affili- ated persons, one or more of which is an insurer.

(e) ``Insurer'' means any corporation, company, association, society, fraternal benefit society, health maintenance organization, mutual non- profit hospital service corporation, nonprofit medical service corporation, nonprofit dental service corporation, nonprofit optometric service cor- poration, reciprocal exchange, person or partnership writing contracts of insurance, indemnity or suretyship in this state upon any type of risk or loss except lodges, societies, persons or associations transacting business pursuant to the provisions of K.S.A. 40-202 and amendments thereto.

(f) ``Person'' means an individual, corporation, a partnership, an as- sociation, a joint stock company, a trust, an unincorporated organization, any similar entity or any combination of the foregoing acting in concert.

(g) ``Securityholder'' of a specified person means one who owns any security of such person, including common stock, preferred stock, debt obligations, and any other security convertible into or evidencing the right to acquire any of the foregoing.

(h) ``Subsidiary'' of a specified person means an affiliate controlled by such person directly, or indirectly, through one or more intermediar- ies.

(i) ``Voting security'' means any security convertible into or evidenc- ing a right to acquire a voting security.

Sec./007006/K.S.A. 40-204, 40-205, 40-205a, 40-239, 40-240, 40-3202, 40-3203, 40-3204, 40-3209, 40-3225, 40-3227 and 40-3302 are hereby repealed.

Sec./007006/This act shall take effect and be in force from and after its publication in the statute book.

Approved April 14, 1996.