HBA-TYH H.B. 2096 76(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 2096 By: Davis, John Insurance 4/9/1999 Introduced BACKGROUND AND PURPOSE The 74th Legislature adopted Article 1.10D, Insurance Code, to create within the Texas Department of Insurance (department) an insurance fraud unit. The purpose of the insurance fraud unit is to identify and investigate insurance fraud, to cooperate with other law enforcement authorities, and to discipline and prosecute violators of the insurance laws. Since the passage of the statute, it has been estimated that for every dollar spent on insurance fraud investigation about $7 is saved or recovered. H.B. 2096 improves the capacity of the department to perform its duties under the provisions of Article 1.10D, Insurance Code, by: _requiring insurers to notify policyholders and providers of the consequences of fraud; _creating new administrative authority for the commissioner of insurance to address fraud; _requiring insurers to create anti-fraud investigative units within their companies; _creating immunities for insurer-to-insurer communications relating to the identification of suspected fraud; and _requiring health care provider licensing agencies to institute discipline against their licensees upon convictions for criminally fraudulent acts. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Chapter 3, Insurance Code, by adding Article 3.101 of a new Subchapter L, Insurer Anti-fraud Programs, as follows: Art. 3.101. STATEMENT OF PUBLIC POLICY. Provides legislative findings regarding the health insurance business's propensity for potential abuse and illegal activities. There are numerous law enforcement agencies investigating and prosecuting fraudulent activity. This chapter is intended to permit the full utilization of the expertise of the commissioner of insurance (commissioner) and the Texas Department of Insurance (department) to more effectively investigate and discover insurance frauds, halt fraudulent activities, and assist and receive assistance from law enforcement agencies in prosecution of insurance frauds. SECTION 2. Amends Chapter 3, Insurance Code, by adding Article 3.101-1 of a new Subchapter L, Insurer Anti-fraud Programs, as follows: Art. 3.101-1. NOTICE OF PENALTY FOR FALSE OR FRAUDULENT CLAIMS; DISPLAY ON FORMS. Requires any insurer who prints, reproduces, or furnishes a form to any person, who gives notice to the insurer or makes claim against it, to print or display a statement or a statement substantially similar in terms of intent and language on the form. Sets forth the specific language of the statement. SECTION 3. Amends Chapter 3, Insurance Code, by adding Article 3.101-2 of a new Subchapter L, Insurer Anti-fraud Programs, as follows: Art. 3.101-2. ADMINISTRATIVE ACTION FOR FRAUD. Authorizes the commissioner to order the insurer to retain amounts that would otherwise be owed to the health care provider, if the commissioner determines that an insurer has been defrauded by the action of a health care provider, including a hospital, physician, dentist, chiropractor, nurse, or other practitioner of the health care or healing arts. SECTION 4. Amends Chapter 3, Insurance Code, by adding Article 3.101-3 of a new Subchapter L, Insurer Anti-fraud Programs, as follows: Art. 3.101-3. INSURER ANTI-FRAUD INVESTIGATIVE UNITS. (a) Requires every insurer in this state who had $10 million or more in direct premiums written at any time in the previous calendar year to: (1) establish and maintain a division within the company to investigate possible fraudulent claims by insureds or against the insureds; or (2) contract with others to investigate possible fraudulent claims against policies held by its insureds. (b) Requires an insurer to file a detailed description of the division and the results of its investigations annually for approval with the insurance fraud unit of the department (fraud unit) ( Article 1.10D, Insurance Code (Insurance Fraud Unit)) beginning on or before July 1, 2001. (c) Provides that every insurer in this state, who had less than $10 million in direct premiums written in the previous calendar year, must adopt annually an anti-fraud plan and file it for approval with the fraud unit beginning on or before July 1, 2001. Requires the insurer, after the insurer's satisfaction of its first filing requirement, to comply thereafter with the filing dates as established by the commissioner (d) Authorizes an insurer, in discharging its obligation to establish and maintain an anti-fraud division, to contract with others to investigate possible fraudulent claims against policies held by its insureds. (e) Requires an insurer's anti-fraud plan, if one is established and maintained, to include: (1) a description of the insurer's procedures for detecting and investigating possible fraudulent insurance acts; (2) a description of the insurer's procedures for the mandatory reporting of possible fraudulent insurance acts to the fraud unit; (3) a description of the insurer's plan for anti-fraud education and training of its claims adjusters or other personnel; (4) the names, addresses, telephone numbers, and fax numbers of the persons assigned by the insurer to staff the insurer's anti-fraud division; and (5) a written description or chart outlining the organizational arrangement of the insurer's anti-fraud personnel who are responsible for the investigation and reporting of possible fraudulent insurance acts. (f) Requires an insurer, who elects to contract with others to investigate possible fraudulent claims against policies held by it insureds, to file for approval with the fraud unit: (1) a copy of the written contract between the insurer and the entity with which the insurer has entered into an agreement to investigate possible fraudulent insurance claims; (2) the names, addresses, telephone numbers, and fax numbers of the principals of the entity with which the insurer has entered into an agreement to investigate possible fraudulent claims; and (3) the qualifications of the principals of the entity with which the insurer has entered into an agreement to investigate possible fraudulent claims. (g) Requires any insurer who obtains a certificate of authority after January 1, 2000, to comply with the requirements of this section within18 months. Requires the insurer to comply thereafter with the filing dates as established by the commissioner. (h) Defines the term "division" to include the assignment of fraud investigation to employees whose principal responsibilities are the investigation and disposition of claims. (i) Provides that if an insurer hires additional employees or contracts with another entity to fulfill the requirements of this section, the additional cost incurred must be included as an administrative expense for ratemaking purposes. SECTION 5. Amends Chapter 3, Insurance Code, by adding Article 3.101-4 of a new Subchapter L, Insurer Anti-fraud Programs, as follows: Art. 3.101-4. IMMUNITY FOR INSURER-TO-INSURER INFORMATION SHARING. (a) Authorizes an insurer or its contracting entity, in the course of investigating possible insurance fraud claims, to share information with other insurers or entities that have contracted with insurers to provide anti-fraud investigative services. (b) Provides that the sharing of information between insurers and their contracting entities under this statute will not subject the parties to liability for defamation by the health care provider if the provision of information is for the purpose of reporting, detecting, or preventing fraudulent insurance acts and is made without malice, fraudulent intent, or bad faith. (c) Provides that this section does not affect or modify any common law or statutory privilege or immunity. SECTION 6. Amends Title 1, Health and Safety Code, by adding Section 2.001 of a new Chapter 2, Health Care Fraud Programs, as follows: Sec. 2.001. PUBLIC POLICY. Requires it to be the policy of this state to confront aggressively the problem of health care fraud in Texas by facilitating the detection and prevention of fraud at its source. SECTION 7. Amends Title 1, Health and Safety Code, by adding Section 2.002 of a new Chapter 2, Health Care Fraud Programs, as follows: Sec. 2.002. DEFINITIONS. Defines "insurer," "health maintenance organization,"and "health care provider." SECTION 8. Amends Title 1, Health and Safety Code, by adding Section 2.003 of a new Chapter 2, Health Care Fraud Programs, as follows: Sec. 2.003. UNPROFESSIONAL CONDUCT. (a) Requires the following actions carried out by a provider in his or her professional activities to constitute unprofessional conduct and provide grounds for disciplinary action, if he or she: (1) knowingly presents or causes to be presented any false or fraudulent claim for the payment of a loss under a contract of insurance; (2) knowingly prepares, makes, or subscribes any writing, with intent to present or use, or to allow it to be presented or used in support of any false or fraudulent claim; (3) commits an offense that is a violation of Chapter 35 (Insurance Fraud), Penal Code, or is a violation of any similar statute under the laws of other jurisdictions. (b) Requires a violation of this provision, in addition to such other provisions of civil or criminal law, to constitute cause for the suspension of the provider's license for one year for the first conviction for fraud in any jurisdiction, and revocation of a provider's license for the second conviction in any jurisdiction. Provides that the first and second convictions need not occur in the same jurisdiction for the revocation to be imposed. SECTION 9. Amends Title 1, Health and Safety Code, by adding Section 2.004 of a new Chapter 2, Health Care Fraud Programs, as follows: Sec. 2.004. NON-APPLICATION TO ERISA PLANS. Prohibits any portion of this chapter from being construed to apply to those self-funded health care plans that may be governed by the provisions of Employee Retirement Income Security Act of 1974, as amended. SECTION 10. Amends Article 1.10D, Insurance Code, by adding Section 3A, as follows: Sec. 3A. INSURER ANTI-FRAUD INVESTIGATIVE REPORTS. (a) Requires the insurance fraud unit to receive, review, and investigate in a timely manner all insurer anti-fraud reports submitted pursuant to the provisions of Article 3.101. (b) Requires the insurance fraud unit to report in writing annually to the commissioner the number of cases completed and recommendations for new regulatory and statutory responses to the types of fraudulent activities being encountered by the insurance fraud unit. SECTION 11. Amends Article 1.10D, Insurance Code, by adding Subsection 2(h), as follows: (h) Requires the insurance fraud unit to be funded by an anti-fraud assessment levied against insurers calculated as a percentage of the total premium written during the previous calendar year. Requires the percentage and dates of payment to be set by the commissioner upon notice and hearing. Prohibits the anti-fraud assessment from exceeding one-half percent of gross premiums written by the insurer. Authorizes the insurer to take as a credit against any premium tax obligations under the provisions of Article 4.11 (Life, Health, and Accident Insurance Companies; Premium Tax), the amount paid on the anti-fraud assessment. Requires the anti-fraud assessment to be paid to the office of the comptroller of public accounts. SECTION 12. Effective date: January 1, 2000. SECTION 13. Emergency clause.