KRS 304.17A-310: Financial solvency requirements for network.

To qualify as a provider -sponsored integrated health delivery network, the network shall

meet the following financial solvency requirements:

(1) Maintenance of a fidelity bond or fidelity insurance in an amount not less than two

hundred fifty thousand dollars ($250,000) on employees and officers, directors, and

partners who receive, collect, disburse, or invest funds of the provider -sponsored

network;

(2) (a) The provider-sponsored network shall have an initial net worth requirement of

one million five hund red thousand dollars ($1,500,000) and shall thereafter

maintain the minimum net worth required under paragraph (b) of this

subsection.

(b) Every provider-sponsored network shall maintain a minimum net worth equal

to the greater of:

1. One million dollars ($1,000,000);

2. Two percent (2%) of annual premium revenues as reported on the most

recent annual financial statement filed with the commissioner on the

first one hundred fifty million dollars ($150,000,000) of premiums and

one percent (1%) of annual premi ums on the premiums in excess of one

hundred fifty million dollars ($150,000,000);

3. An amount equal to the sum of three (3) months' uncovered health care

expenditures as reported on the most recent financial statement filed

with the commissioner of insurance; or

4. An amount equal to the sum of eight percent (8%) of annual health care

expenditures except those paid on a capitated basis or managed hospital

payment basis and four percent (4%) of annual hospital expenditures

paid on a managed hospital payment basis as reported on the most recent

financial statement filed with the commissioner.

(c) In determining net worth, no debt shall be considered fully subordinated

unless the subordination clause is in a form acceptable to the commissioner.

Any interest o bligation relating to the repayment of any subordinated debt

shall be similarly subordinated.

1. The interest expenses relating to the repayment of any fully subordinated

debt shall be considered covered expenses.

2. Any debt incurred by a note meeting the requirements of this section,

and otherwise acceptable to the commissioner, shall not be considered a

liability and shall be recorded as equity.

(3) (a) Unless otherwise provided below, each provider -sponsored network shall

deposit with the commissioner or, at the discretion of the commissioner, 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 that are acceptable to the commissioner which at all

times shall have a value of not less than three hundred thousand dollars

($300,000).

(b) The deposit shall be an admitted asset of the provider -sponsored network in

the determination of net worth.

(c) All income from deposits shall be an asset of the provider -sponsored network.

A provider -sponsored network 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 deposited or substituted.

(d) The deposit shall be used to protect the interests of the provider -sponsored

network's enr ollees and to assure continuation of health care services to

enrollees of a provider -sponsored network which is in rehabilitation or

conservation. The commissioner may use the deposit for administrative costs

directly attributable to a receivership or liqu idation. If the provider-sponsored

network is placed in receivership or liquidation, the deposit shall be an asset

subject to the provisions of Subtitle 33 of this chapter.

(4) Every provider-sponsored network shall, when determining liabilities, include a n

amount estimated in the aggregate to provide for any unearned premium and for the

payment of all claims for health care expenditures which have been incurred,

whether reported or unreported, which are unpaid and for which the provider -

sponsored network is or may be liable, and to provide for the expense of adjustment

or settlement of such claims.

(5) (a) Every contract between a provider -sponsored network and a participating

provider of health care services shall be in writing and shall set forth that in

the event the provider -sponsored network fails to pay for health care services

as set forth in the contract, the enrollee shall not be liable to the provider for

any sums owed by the provider-sponsored network.

(b) If the participating provider contract ha s not been reduced to writing as

required by this subsection or if the contract fails to contain the required

prohibition, the participating provider shall not collect or attempt to collect

from the enrollee sums owed by the provider-sponsored network.

(6) Each provider-sponsored network shall have a plan for handling insolvency which

guarantees the continuation of benefits for the duration of the contract period for

which premiums have been paid and continuation of benefits to members who are

confined on t he date of insolvency in an inpatient facility until their discharge or

expiration of benefits.

(7) If at any time uncovered expenditures exceed ten percent (10%) of total health care

expenditures, a provider -sponsored network shall place an uncovered expe nditures

insolvency deposit with the commissioner or with any organization or trustee

acceptable to the commissioner through which a custodial or controlled account is

maintained, in cash or securities that are acceptable to the commissioner. This

deposit shall at all times have a fair market value in an amount of one hundred

twenty percent (120%) of the provider -sponsored network's outstanding liability for

uncovered expenditures for enrollees, including incurred but not reported claims,

and shall be calcu lated as of the first day of the month and maintained for the

remainder of the month. The provider -sponsored network shall file a report within

forty-five (45) days of the end of the calendar quarter with information sufficient to

demonstrate compliance wi th this subsection. The provisions of subsection (6) of

this section shall apply to the deposit required in this subsection.