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AB-595 Health care service plans: health insurers: mergers and acquisitions.(2017-2018)

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Date Published: 02/14/2017 09:00 PM
AB595:v99#DOCUMENT


CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Assembly Bill No. 595


Introduced by Assembly Member Wood

February 14, 2017


An act to add Article 10.2 (commencing with Section 1399.65) to Chapter 2.2 of Division 2 of the Health and Safety Code, and to add Sections 10133.61 and 10133.62 to the Insurance Code, relating to health care.


LEGISLATIVE COUNSEL'S DIGEST


AB 595, as introduced, Wood. Health care service plans: health insurers: mergers and acquisitions.
Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law requires every nonprofit health care service plan applying to restructure, as defined, or convert its activities to secure the approval of the Director of the Department of Managed Health Care. Under existing law, a health care service plan is required to notify the director of any material modifications of its plan or operations, as specified.
This bill would require specified entities that intend to merge with, consolidate, acquire, purchase, or control, directly or indirectly, a health care service plan doing business in this state to give notice to, and secure the prior approval from, the Director of the Department of Managed Health Care. The bill would require that entity to apply for licensure as a health care service plan. The bill also would require the department, prior to approval, conditional approval, or denial of the proposed agreement or transaction, to hold a public hearing on the proposal and make specified findings. The bill would require the department to prepare an independent health care impact statement if the director determines that a material amount of the health care service plan’s assets are subject to merger, consolidation, acquisition, purchase, or control, as specified. The bill would authorize the director to give conditional approval for a transaction or agreement as described in the bill, under specified circumstances. Because a willful violation of the bill’s provisions applicable to a health care service plan would be a crime, it would impose a state-mandated local program.
Existing law provides for the regulation of insurers, including health insurers, by the Insurance Commissioner. The Insurance Holding Company System Regulatory Act requires, among other provisions, each insurer that is authorized to do business in this state and that is a member of an insurance holding company system to register with the commissioner and to file a registration statement containing specified information. The act also prohibits a person from making a tender offer for, or a request or invitation for tenders of, or from entering into an agreement to exchange securities for or acquire in the open market, any voting security, or any security convertible into a voting security, of a domestic insurer or of any other person controlling a domestic insurer, if the other person is not substantially engaged in any businesses other than insurance, if that would result in the person acquiring control of the insurer. The act also prohibits a person from entering into an agreement to merge with or otherwise acquire control of a domestic insurer unless specified conditions are met.
This bill would require any entity that intends to merge with, consolidate, acquire, purchase, or control, directly or indirectly, any insurer engaged in the business of health insurance and doing business in California to give notice to, and secure prior approval from, the commissioner. The bill would specify that an insurer domiciled or commercially domiciled in California additionally would be subject to the requirements of the Insurance Holding Company System Regulatory Act, if applicable. The bill also would require the department, prior to approval, conditional approval, or denial of the proposed transaction or agreement, to hold a public hearing on the proposal and make specified findings. The bill would require the commissioner to prepare an independent health care impact statement if the commissioner determines that a material amount of the insurer’s assets are subject to merger, consolidation, acquisition, purchase, or control, as specified. The bill would authorize the commissioner to give conditional approval for a transaction or agreement as described in the bill, under specified circumstances.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: YES  

The people of the State of California do enact as follows:


SECTION 1.

 Article 10.2 (commencing with Section 1399.65) is added to Chapter 2.2 of Division 2 of the Health and Safety Code, to read:
Article  10.2. Mergers and Acquisitions of Health Care Service Plans

1399.65.
 (a) An entity that intends to merge with, consolidate, acquire, purchase, or control, directly or indirectly, any health care service plan doing business in this state shall give notice to, and secure the prior approval from, the director.
(b) An entity that intends to merge with, consolidate, acquire, purchase, or control, directly or indirectly, any health care service plan shall apply for licensure as a health care service plan pursuant to Article 3 (commencing with Section 1349).
(c) This article shall apply only to an entity that holds a license as a health care service plan under this act or a health insurer licensed under the Insurance Code.
(d) The director may approve, conditionally approve, or deny an application for licensure under this article.

1399.66.
 (a) Prior to approving, conditionally approving, or denying a transaction or agreement described in Section 1399.65, the department shall do all of the following:
(1) Hold a public hearing on the proposal.
(2) Make a finding that the proposal meets all of the following criteria:
(A) Provides short-term and long-term benefits to purchasers, subscribers, enrollees, and patients in the form of lower prices, better quality, improved access to care, and reduced health disparities.
(B) Does not adversely affect competition. In making this finding, the director shall request an advisory opinion from the Attorney General regarding whether competition would be adversely affected and what mitigation measures could be adopted to avoid that result.
(C) Does not jeopardize the financial stability of the parties or prejudice the interests of their purchasers, subscribers, enrollees, and patients.
(D) Does not result in a significant effect on the availability or accessibility of existing health care services.
(3) Determine whether the applicant is of reputable and responsible character. The department shall consider any available information that the applicant has demonstrated a pattern and practice of violations of state or federal laws and regulations.
(4) Determine whether the applicant has the ability to comply with this chapter and the rules and regulations adopted under this chapter. The department shall consider all of the following:
(A) A history of noncompliance with applicable state or federal laws, regulations, or requirements related to providing, or arranging to provide for, health care services or benefits in this state or another state.
(B) A history of noncompliance with applicable state or federal laws, regulations, or requirements related to providing, or arranging to provide for, health care services or benefits authorized for reimbursement under the Medicare Program or the Medicaid program.
(C) A history of noncompliance with applicable state or federal laws, regulations, or requirements related to providing, or arranging to provide for, health care services as a licensed health professional or an individual or entity contracting with a health care service plan or health insurer in this state or another state.
(b) If the director determines that a material amount of the assets of a health care service plan is subject to merger, consolidation, acquisition, purchase, or control, either directly or indirectly, the director shall prepare an independent health care impact statement.
(1) The independent health care impact statement shall contain the following information about the short-term and long-term effects of the proposed transaction:
(A) An assessment of the effect of the transaction on health care costs to purchasers and consumers.
(B) An assessment of the effect of the transaction on quality of care.
(C) An assessment of the effect of the transaction on access to care and health disparities.
(D)An assessment of the effect of the transaction on reducing health disparities.
(E) An assessment of the effectiveness of any mitigation measures proposed by the applicant to reduce any potential adverse effect on cost, quality, access to services, or health disparities identified in the independent impact statement.
(F) Recommendations for additional feasible mitigation measures that would reduce or eliminate any significant adverse effect on cost, quality, access to services, or health disparities identified in the impact statement.
(2) The information contained in the independent health care impact statement shall be used in considering whether the transaction meets the criteria set forth in paragraph (2) of subdivision (a). Copies of the health care impact statement shall be made available to the public at least 30 days before the department’s public hearing.
(c) If the entity involved in the transaction is a nonprofit corporation described in Section 5046 of the Corporations Code, the department shall seek an independent valuation of the assets of the nonprofit corporation in order to ensure that the assets of the nonprofit corporation are not undervalued in the transaction.
(d) The director may give conditional approval for any transaction or agreement described in Section 1399.65 if the parties to the transaction or agreement commit to taking action to prevent adverse impacts on competition, or health care costs, access, and quality of care in this state.

SEC. 2.

 Section 10133.61 is added to the Insurance Code, to read:

10133.61.
 (a) An entity that intends to merge with, consolidate, acquire, purchase, or control, directly or indirectly, any insurer engaged in the business of health insurance, as defined in subdivision (b) of Section 106, doing business in this state shall give notice to, and secure prior approval from, the commissioner.
(b) The requirements of Section 1215.2 shall apply for insurers domiciled or commercially domiciled in California.
(c) The commissioner may approve, conditionally approve, or deny the application.

SEC. 3.

 Section 10133.62 is added to the Insurance Code, to read:

10133.62.
 (a) Prior to approving, conditionally approving, or denying a transaction or agreement described in Section 10133.61, the department shall do both of the following:
(1) Hold a public hearing on the proposal.
(2) Make a finding that the proposal meets all of the following criteria:
(A) Provides short-term and long-term benefits to purchasers, policyholders, insureds, and patients in the form of lower prices, better quality, improved access to care, and reduced health disparities.
(B) Does not adversely affect competition. In making this finding, the commissioner shall request an advisory opinion from the Attorney General regarding whether competition would be adversely affected and what mitigation measures could be adopted to avoid that result.
(C) Does not jeopardize the financial stability of the parties or prejudice the interests of their purchasers, policyholders, insureds, and patients.
(D) Does not result in a significant effect on the availability or accessibility of existing health care services.
(3) Determine whether the applicant is of reputable and responsible character. The commissioner shall consider any available information that the applicant has demonstrated a pattern and practice of violations of state or federal laws and regulations.
(4) Determine whether the applicant has the ability to comply with this chapter and the rules and regulations adopted under this chapter. The commissioner shall consider all of the following:
(A) A history of noncompliance with applicable state or federal laws, regulations, or requirements related to providing, or arranging to provide for, health care services or benefits in this state or another state.
(B) A history of noncompliance with applicable state or federal laws, regulations, or requirements related to providing, or arranging to provide for, health care services or benefits authorized for reimbursement under the Medicare Program or the Medicaid program.
(C) A history of noncompliance with applicable state or federal laws, regulations, or requirements related to providing, or arranging to provide for, health care services as a licensed health professional or an individual or entity contracting with a health care service plan or health insurer in this state or another state.
(b) If the commissioner determines that a material amount of the assets of a health insurer is subject to merger, consolidation, acquisition, purchase, or control, either directly or indirectly, the commissioner shall prepare an independent health care impact statement.
(1) The independent health care impact statement shall contain the following information about the short-term and long-term effects of the proposed transaction:
(A) An assessment of the effect of the transaction on health care costs to purchasers and consumers.
(B) An assessment of the effect of the transaction on quality of care.
(C) An assessment of the effect of the transaction on access to care and health disparities.
(D) An assessment of the effect of the transaction on reducing health disparities.
(E) An assessment of the effectiveness of any mitigation measures proposed by the applicant to reduce any potential adverse effect on cost, quality, access to services, or health disparities identified in the independent impact statement.
(F) Recommendations for additional feasible mitigation measures that would reduce or eliminate any significant adverse effect on cost, quality, access to services, or health disparities identified in the impact statement.
(2) The information contained in the independent health care impact statement shall be used in considering whether the transaction meets the criteria set forth in paragraph (2) of subdivision (a). Copies of the health care impact statement shall be made available to the public at least 30 days before the department’s public hearing.
(c) If the entity involved in the transaction is a nonprofit corporation described in Section 5046 of the Corporations Code, the commissioner shall seek an independent valuation of the assets of the nonprofit corporation in order to ensure that the assets of the nonprofit corporation are not undervalued in the transaction.
(d) The commissioner may give conditional approval for any transaction or agreement described in Section 10133.61 if the parties to the transaction or agreement commit to taking action to prevent adverse impacts on competition, or health care costs, access, and quality of care in this state.

SEC. 4.

 No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.