                              ATTORNEY GENERAL OF TEXAS
                                          GREG        ABBOTT




                                              March 17,2003



The Honorable Joe Driver                               Opinion No. GA-0040
Chair, House Committee on Law Enforcement
Texas House of Representatives                         Re: Whether the Texas Department of Insurance
P.O. Box 2910                                          is authorized to enforce certain provisions of the
Austin, Texas 78768-2910                               Health Maintenance Organization Act, TEX. INS.
                                                       CODE ANN. ch. 20A, against physicians who are
                                                       not under contract with a health maintenance
                                                       organization   (RQ-05 97- JC)


Dear Representative    Driver:

         Your predecessor as chair of the House Committee on Public Safety, which has been
renamed the House Committee on Law Enforcement, asked about the authority of the Texas
Department of Insurance under the Health Maintenance Organization Act, TEX. INS.CODEANN. ch.
20A (Vernon 198 1 & Supp. 2003) (“the Act”), with respect to certain billing practices by physicians
who are not under contract with a health maintenance organization (HMO”).          Your predecessor
explained that sometimes a physician who has not contracted with an HMO will treat an HMO
enrollee at a facility, such as a hospital, that has contracted with the HMO. Generally in these
situations, the physician will first seek payment from the HMO, but, if the HMO does not pay in full,
the physician will send a bill for the remaining balance to the HMO enrollee.’ This practice is called
“balance billing.” Request Letter, supra note 1 (Memorandum at 2). Your predecessor avered that
the Texas Department of Insurance, in addressing enrollee complaints about this practice, “has
recently attempted to enforce the ‘hold harmless’ provisions of HMO contracts against physicians
who have not contracted with HMOs,” id. (Memorandum at l), and asked about the Department’s
authority with regard to balance billing by these physicians, id. at 1.

        Under the Act, the term “[hlealth maintenance organization” “means any person who
arranges for or provides a health care plan, a limited health care service plan, or a single health care
service plan to enrollees on a prepaid basis.” TEX. INS. CODE ANN. art. 20A.O2(n) (Vernon Supp.




         ‘Letter from Honorable Bob Turner, Chair, House Committee on Public Safety, to Honorable John Comyn,
Texas Attorney General (Aug. 27,2002) (on file with Opinion Committee) [hereinafter Request Letter].
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2003).2 The Act requires an HMO to establish a network of physicians and other providers with
which it contracts to provide services to enrollees. See id. arts. 20A.O4(a)( 14)-( 15), 20A.O5(a); see
also id. art. 20A.O2(r) (defining “physician”), art. 20A.O2(t) (defining “provider” to include “any
person other than a physician, including a licensed doctor of chiropractic, registered nurse,
pharmacist, optometrist, registered optician, acupuncturist, pharmacy, hospital, or other institution
or organization or person that is licensed or otherwise authorized to provide a health care service in
this state”). The term “provider” includes hospitals and other health care facilities. See id. art.
20A.O2(t). An “enrollee” is “an individual who is enrolled in a health care plan, including covered
dependents.” Id. art. 20A.O2(h).

         Significantly, article 20A. 1SA(g) requires that “[a]11contracts or other agreements between
a health maintenance organization and a physician or provider shall specify that the physician or
provider will hold an enrollee harmless for payment of the cost of covered health care services in the
event the health maintenance organization fails to pay the provider for health care services.” Id. at-t.
20A. 18A(g). As the request letter explains, “[plhysicians and providers that participate in an HMO’s
network contractually agree to predetermined rates .for covered services, and the ‘hold harmless’
clauses in their contracts require network physicians to accept payment from the HMO as payment
in full.” Request Letter, supra note 1 (Memorandum at 1).

        Enrollees may receive some covered medical services from physicians and providers who
are not part of the HMO’s network. Generally, the Act provides that an HMO must compensate
those physicians and providers at an agreed or the “usual and customary” rate. The Act requires, for
example, that an HMO’s application for a certificate of authority include “documentation
demonstrating    that the health maintenance organization will pay for emergency care services
performed by non-network physicians or providers at the negotiated or usual and customary rate.”
TEX. INS. CODE ANN. art. 20A.O4(a)( 16) (V emon Supp. 2003). And, pursuant to article 20A.O9(f),
if medically necessary covered services are not available through network physicians or providers,
“the health maintenance organization, on the request of a network physician or provider, within a
reasonable period, shall allow referral to a non-network physician or provider and shall fully
reimburse the non-network physician or provider at the usual and customary or an agreed rate.” Id.
art. 2OA.O9(f).

        Your predecessor asked primarily whether the Act prohibits a physician who is not under
contract with an HMO “from recovering the balance of billed charges from an HMO enrollee.”
Request Letter, supra note 1.



           2See also TEX. INS. CODE ANN. art. 20A.02(1) (Vernon Supp. 2003) (“‘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; provided, however, a part of such plan consists of arranging for or the provision of health care services, as
distinguished from indemnification    against the cost of such service, on a prepaid basis through insurance or otherwise.“),
id. art. 20A.O2(m) (“‘Health care services’ means any services, including the furnishing to any individual of
pharmaceutical services, medical, chiropractic, or dental care, or hospitalization or incident to the furnishing of such
services, care, or hospitalization, as well as the furnishing to any person of any and all other services for the purpose of
preventing, alleviating, curing or healing human illness or injury a limited health care service plan, or a single health care
service plan.“).
The Honorable      Joe Driver - Page 3                      (GA-0040)




         The Act does not require a physician who is not under contract with an HMO to hold an
enrollee ofthe HMO harmless. Article 20A. 18A(g) requires that “[a]11contracts or other agreements
between a health maintenance organization and a physician or provider shall specify that the
physician or provider will hold an enrollee harmless for payment of the cost of covered health care
services in the event the health maintenance organization fails to pay the provider for health care
services.” TEX. INS. CODE ANN. art. 20A. 18A(g) (Vernon Supp. 2003). The statutory requirement
that a physician hold an enrollee harmless for the cost of covered health care services is imposed by
the physician’s contract with the HMO. The statutory requirement does not exist absent a contract.
Nor does the Act otherwise prohibit a physician who is not under contract with an HMO from billing
an enrollee of the HMO for charges not paid by the HMO.

        The Texas Department of Insurance does not disagree. Indeed, it expressly acknowledges
that the Act “per se does not prohibit a physician that is not under contract with an HMO fi-om
balance billing an HMO enrollee.“3 The Department also asserts, however, that the Act “allows an
HMO to contract to ensure that a physician rendering services . . . in a network facility has agreed
to honor the facility’s hold harmless agreement.” TDI Brief, supra note 3, at 6. Our conclusion that
the Act does not prohibit a physician who is not under contract with an HMO from balance billing
assumes that the physician has not entered into an agreement with the HMO or the network facility
that would require the physician to hold the enrollee harmless. It is beyond the scope of your
predecessor’s query whether state law permits a network facility to require non-network physicians
with privileges at the facility to honor the facility’s hold harmless agreement with an HMO4 and we
do not address that issue.

         Your predecessor also asked about the Texas Department of Insurance’s authority to enforce
the Act against physicians who are not under contract with an HMO. He specifically asked, “Does
the. . . Act authorize the Texas Department of Insurance to enforce provisions of the . . . Act against
physicians [who] are not under contract with an HMO?” Request Letter, supra note 1. We answer
this very broad question only with respect to the practice of balance billing.

        The Department of Insurance acknowledges that the Act does not authorize it to enforce the
Act to prohibit a physician who is not under contract with an HMO from balance billing an enrollee.
See TDI Brief, supra note 3, at 5 (“[the Act] does not authorize TDI to enforce provisions of the
HMO Act to prohibit physicians from balance billing enrollees”). We agree. The Department is not


           3Brief from Sara Shiplet Waitt, Senior Associate Commissioner, Texas Department of Insurance, to Susan
Gusky, Chair, Opinion Committee, Office of the Attorney General at 6 (Nov. 4,2002) (on file with Opinion Committee)
[hereinafter TDI Briefj.

          4Compare TDI Brief at 4 (“the department believes the most efficient way to resolve this problem, under the
current legal framework, is for an HMO to require its contracted facilities, including hospitals, to require physicians
practicing there to honor the facility’s hold harmless agreement with the HMO”), with Brief from Lee A. Spangler,
Assistant General Counsel, Texas Medical Association, to Susan Denmon Gusky, Chair, Opinion Committee, Office of
the Attorney General at 4 (Oct. 7,2002) ( on f 11e with Opinion Committee) (“a hospital cannot bind a physician to the
terms of a contract to which it agrees”), and Supplemental Brief from Lee A. Spangler, Assistant General Counsel, Texas
Medical Association, to Susan Denmon Gusky, Chair, Opinion Committee, Office of the Attorney General (Dec. 6,2002)
(on file with Opinion Committee).
The Honorable      Joe Driver - Page 4                 (GA-0040)




authorized to insist that a physician who is not under contract with an HMO refrain from balance
billing an enrollee of the HMO because the Act does not prohibit the physician from balance billing
the enro11ee.5 See TEX. INS. CODE ANN. art. 20A. 18A(g) (Vernon Supp. 2003) (“AZ contracts or
other agreements between a health maintenance organization and a physician or provider shall
specify that the physician or provider will hold an enrollee harmless for payment of the cost of
covered health care services in the event the health maintenance organization fails to pay the
provider for health care services.“) (emphasis added).




          ‘Again, we assume that the physician has not entered into an agreement with the HMO or the network facility
that would require the physician to hold the enrollee harmless.
The Honorable   Joe Driver - Page 5          W-0040)




                                      SUMMARY

                         The Health Maintenance Organization Act, TEX. INS. CODE
                ANN. ch. 20A (Vernon 1981 & Supp. 2003), does not prohibit a
                physician who is not under contract with an HMO from billing an
                HMO enrollee for charges not paid by the HMO. The Department of
                Insurance is not authorized to enforce the Act to prohibit such a
                physician from balance billing an enrollee of the HMO.

                                            Very truly yours,




BARRY R. MCBEE
First Assistant Attorney General

DON R. WILLETT
Deputy Attorney General - General Counsel

NANCY S. FULLER
Chair, Opinion Comrnittee

Mary R. Crouter
Assistant Attorney General, Opinion Committee
