New Insurance Requirements for Networks

In the recently ended 1997 legislative session, the Florida Legislature passed a bill which could seriously affect businesses which are operated for the purpose of arranging and administrating "provider networks" for HMOs. Newly enacted Section 641.316, Florida Statutes, which became effective July 1, 1997, is intended to ensure the financial soundness of "Fiscal Intermediary Services Organizations" ("FISO") which provide "Fiscal Intermediary Services" for licensed health care professionals such as physicians, chiropractors, podiatrists and dentists. Essentially, the law is designed to protect funds received and held by currently unregulated entities which have an obligation to distribute those funds to medical professionals. This is done by requiring those entities to either (a) be subject ot regulation under other Florida statutory provisions or (b) post a $10,000,000 bond to assure protection for the payor of the funds and the ultimate recipients of the funds.

Under the new law, "Fiscal Intermediary Services" is defined to mean fiduciary services rendered pursuant to a health care provider's contract with an HMO and includes services for reimbursements received or collected on behalf of a physician for services rendered, patient and provider accounting services, financial reporting and auditing services, receipts and collection management services, compensation and reimbursement disbursement services and other related fiduciary services.

A "Fiscal Intermediary Services Organization" means a person or entity that performs "Fiscal Intermediary Services" for health care professionals who contract with HMOs, but does not include:

1. A FISO owned, operated or controlled by a licensed hospital;
2. A licensed insurer;
3. A third party administrator ("TPA") license holder;
4. A licensed prepaid limited health organization;
5. A licensed HMO; or
6. A group practice, as defined under Florida's Patient Self-Referral Act of 1992.

Under the statute, a FISO must obtain and maintain at all times while in business a fidelity bond for $10,000,000. The bond, which is intended to cover against misappropriation of funds, must be posted with the Florida Department of Insurance (the "Department") for the benefit of the managed care plans, their subscribers and the participating providers. Accordingly, unless the entity meets one of the exceptions, it must obtain a fidelity bond. In addition, such entity must register with the Department and meet certain application requirements of Chapter 641, Florida Statutes (relating to HMOs).

The applicable provisions of Chapter 641 require that a FISO provide the Department with a list of the names, addresses and official capacities of the persons who are responsible for the operations of the company, including officers, directors, and owners of more than 5% of the common stock of the company. The listed persons must also fully disclose all contracts or arrangements between them and the company, including any conflicts of interest. Further, such persons must submit autobiographical statements, fingerprint specimens and an independently performed background report. In general, receiving a certificate of authority to operate as a FISO is conditioned on the Department being satisfied that the ownership, control and management of the entity is competent and trustworthy, and possesses managerial experience that would make the proposed operation beneficial to its constituents. There are a number of specifically enumerated reasons (relating to experience, competence, etc.) for which the Department may deny or suspend the authority of a FISO.

A TPA, which typically engages in claims adjudication (an issue not addressed by the new statute), is exempt from the requirements of the statute. Interestingly, as described below, the fidelity bond required for a TPA is much lower than the one required for a FISO.

Since obtaining a $10,000,000 fidelity bond requires sufficient collateralization, it is unlikely that anyone other than a large company will be able to meet the requirement of obtaining such a bond. As an alternative, an entity may opt to obtain a TPA license to be exempt from the statute, which would also allow it to adjudicate claims. In order to receive authority to operate as a TPA, in addition to completing an extensive application process, the entity must also post a fidelity bond. However, the fidelity bond required for TPA's is equal to 10% of the amount of funds annually handled or managed, but not more than $500,000, unless there are extenuating circumstances as determined by the Department. Thus, the new law will likely result in only large companies or those currently regulated being able to operate as a provider network in Florida.