AN ACT Relating to health care insurance; amending RCW 18.100.050 and 70.39.140; and adding a new chapter to Title 48 RCW.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. It is the intent of the legislature to ensure that the citizens of this state receive quality health care services in the most efficient and cost-effective manner. The legislature reaffirms its commitment to the state policy of containing the spiraling costs of health care, which continue to rise at rates over twice the consumer price index. In furtherance of this intent, it is declared to be in the public interest that price competition and economic incentives in the health care delivery system should be encouraged in order to promote and strengthen a more efficient and economic delivery of quality health care.

The legislature finds that such competition may be fostered by recognizing the potentials and authorizing the establishment of "preferred provider organizations," to enter into preferred provider arrangements between insurers, health care service contractors, health maintenance organizations, or other purchasers, and health care providers, which contractual arrangements provide for health benefits at alternative rates or under alternative methods of payment that enure to the benefit of the persons who select such providers. The prospects for avoiding costs without sacrifice to quality care may be achieved internally with appropriate utilization review procedures and sound management controls consistent with requirements for solvency. The promise of more far-reaching cost avoidance in the health sector can yet be realized with the inculcation of economic incentives in the market place between competing preferred provider arrangements and other methods of providing or paying for health care costs.

NEW SECTION. Sec. 2. For the purposes of this chapter:

(1) "Provider" means any person or entity lawfully licensed or authorized to render any health care service.

(2) "Preferred provider" means any provider who or which has contracted in writing with an authorized insurer or registered health care service contractor to provide health care services at alternative rates or under alternative methods of payment.

(3) "Preferred provider arrangement" means a contractual agreement between an authorized insurer or registered health care service contractor, registered health maintenance organization, or other entity purchasing coverage, and preferred providers to provide health care services at alternative rates or under alternative methods of payment to such preferred providers for persons who select such preferred providers.

(4) "Preferred provider organization" means an entity formed to enter into preferred provider arrangements and registered as a preferred provider organization under chapter 48.44 RCW. A preferred provider organization may be formed by one or more persons, organizations, health care providers, insurers, health care service contractors, and health maintenance organizations, including purchasers.

NEW SECTION. Sec. 3. (1) A person, organization, or entity, including health care providers, insurers, or health care service contractors, may enter into preferred provider arrangements. Such preferred provider arrangements may limit payments under a policy or contract to alternative rates or methods of payment regardless of the preferred provider chosen by insureds or subscribers, and may offer the benefit of such alternative rates or methods of payment to persons who select such providers. A preferred provider organization shall register with the insurance commissioner in the same manner as for a health care service contractor pursuant to chapter 48.44 RCW.

(2) A health maintenance organization may offer a preferred provider arrangement by registering as a health care service contractor in accordance with this chapter. Nothing in this act may be construed as limiting the authority of a health maintenance organization registered under chapter 48.46 RCW from negotiating and entering into arrangements with institutions, entities, and persons, including contracts providing for alternative rates or methods of payment, to provide health services to its enrolled population.

(3) Nothing in this chapter affects the provisions of chapter 48.44 RCW applicable to a health care service contractor or the provisions of chapter 48.46 RCW applicable to a health maintenance organization. All preferred provider arrangements offered in this state pursuant to the provisions of this chapter shall be subject to the provisions of chapter 48.44 RCW.

(4) When the preferred provider organization is sponsored by an insurer, a health care contractor, or a health maintenance organization, the financial and security requirements applicable to those particular types of organizations are deemed sufficient.

(5) To ensure an adequate number of providers render health care services offered by the preferred provider organization, no physician or other provider of a type defined in RCW 48.44.010 willing to meet the terms and conditions offered may be excluded. Nothing in a preferred provider arrangement may be construed to unreasonably limit the access of subscribers or insureds to any preferred provider within the preferred provider organization.

Preferred provider organizations shall establish terms and conditions which shall be met by providers in order to qualify for payment as preferred providers. The terms and conditions shall not discriminate unreasonably against or among such providers. Neither differences in prices among providers produced by a process of individual negotiations nor based on market conditions or price differences among providers shall be deemed unreasonable discrimination.

(6) Nothing in this section affects the statutory provisions for mandated offerings or benefits required under Title 48 RCW.

(7) No preferred provider arrangement may hold the preferred provider organization harmless for actions against a preferred provider if the cause of action is claimed to be associated with treatment or lack of treatment by the preferred provider on account of utilization review and management controls imposed on such provider.

NEW SECTION. Sec. 4. For the purposes of encouraging price competition in the health care sector, this chapter shall be liberally construed. However, nothing in this chapter may be construed to authorize any activity which would violate any provision of the unfair business practices act, chapter 19.86 RCW.

Sec. 5. Section 5, chapter 122, Laws of 1969 as amended by section 1, chapter 100, Laws of 1983 and RCW 18.100.050 are each amended to read as follows:

An individual or group of individuals duly licensed or otherwise legally authorized to render the same professional services within this state may organize and become a shareholder or shareholders of a professional corporation for pecuniary profit under the provisions of Title 23A RCW for the purpose of rendering professional service: PROVIDED, That one or more of such legally authorized individuals shall be the incorporators of such professional corporation: PROVIDED FURTHER, That notwithstanding any other provision of this chapter, registered architects and registered engineers may own stock in and render their individual professional services through one professional service corporation: ((~~AND~~)) PROVIDED FURTHER, That licensed health care professionals, providing services to enrolled participants either directly or through arrangements with a health maintenance organization registered under chapter 48.46 RCW or federally qualified health maintenance organization, may own stock in and render their individual professional services through one professional service corporation: AND PROVIDED FURTHER, That licensed health care professionals providing health care services to persons through contractual arrangements with preferred provider organizations as defined under chapter 48.--- RCW (sections 1 through 4 of this 1985 act) may own stock in and render their individual professional services through a professional service corporation.

Sec. 6. Section 15, chapter 5, Laws of 1973 1st ex. sess. as last amended by section 14, chapter 288, Laws of 1984 and RCW 70.39.140 are each amended to read as follows:

(1) From and after a date not less than twelve months but not more than twenty-four months after the adoption of the uniform system of accounting and financial reporting required by RCW 70.39.100, as the commission may direct, the commission shall have the power to initiate such reviews or investigations as may be necessary to assure all purchasers of health care services that the total costs of a hospital are reasonably related to the total services offered by that hospital, that costs do not exceed those that are necessary for prudently and reasonably managed hospitals, that the hospital's rates are reasonably related to the hospital's aggregate costs; and that rates are set equitably among all purchasers or classes of purchasers of services without undue discrimination or preference: PROVIDED, HOWEVER, That nothing in this section precludes an insurer, a preferred provider organization, a health care service contractor, a self-funded program, or a health maintenance organization from negotiating directly with hospitals with respect to payments for inpatient hospital services. Effective July 1, 1985, this chapter does not preclude any hospital from negotiating with and charging any particular payer or purchaser rates that are less than those approved by the commission, if:

(a) The rates are cost justified and do not result in any shifting of costs to other payers or purchasers in the current or any subsequent year; and

((~~(c)~~)) (b) All the terms of such negotiated rates are filed with the commission within ten working days and made available for public inspection.

The commission may retrospectively disapprove such negotiated rates in accordance with procedures established by the commission if such rates are found to contravene any provision of this section.

(2) In order to properly discharge these obligations, the commission shall have full power to review projected annual revenues and approve the reasonableness of rates proposed to generate that revenue established or requested by any hospital subject to the provisions of this chapter. No hospital shall charge for services at rates exceeding those established in accordance with the procedures established hereunder or charge rates which will increase rates otherwise charged to nonpreferred provider subscribers. After June 30, 1985, rates for inpatient care shall be expressed using an appropriate measure of hospital efficiency, such as that based on diagnosis-related groups, and, if necessary for federal medicare participation in a hospital reimbursement control system, hospitals shall charge for such care at rates prospectively established and expressed in terms of a comparable unit of total payment, such as diagnosis-related groups. In the event any hospital reimbursement control system is implemented, children's hospitals shall be exempted until such time as a pediatric based classification system which reflects the unique resource consumption by patients of a children's hospital is perfected. For the purposes of this exemption, children's hospitals are defined as hospitals whose patients are predominantly under eighteen years of age.

(3) In the interest of promoting the most efficient and effective use of health care service, and providing greater promise of hospital cost containment, the commission may develop a hospital reimbursement control system in which all payers or purchasers participate, that includes procedures for establishing prospective rates, that deals equitably with the costs of providing charity care, and that shall include the participation of the federal medicare program under the social security amendments of 1983, Public Law 98-21. The commission shall have the authority to require utilization reviews of patient care to ensure that hospital admissions and services provided are medically justified. The commission may seek approval, concurrence, or participation in such a system from any federal agency, such as the department of health and human services, prior to securing legislative approval pursuant to concurrent resolution for implementation of any hospital reimbursement control system developed pursuant to this section. The commission shall involve the legislature in the development of any plan for a hospital reimbursement control system.

(4) The commission shall assure that no hospital or its medical staff either adopts or maintains admission practices or policies which result in:

(a) A significant reduction in the proportion of patients who have no third-party coverage and who are unable to pay for hospital services;

(b) A significant reduction in the proportion of individuals admitted for inpatient hospital services for which payment is or is likely to be less than the anticipated charges for or costs of such services; or

(c) The refusal to admit patients who would be expected to require unusually costly or prolonged treatment for reasons other than those related to the appropriateness of the care available at the hospital((~~; or~~)).

(5) The commission shall serve as the state agency responsible for coordinating state actions and otherwise responding and relating to the efforts of the federal department of health and human services in planning and implementing federal cost containment programs with respect to hospitals and related health care institutions as authorized by the social security amendments of 1983, as now or hereafter amended, or other federal law, and any rules or regulations promulgated thereto. In carrying out this responsibility, the commission may assume any function or role authorized by appropriate federal regulations implementing the social security amendments of 1983; or assume any combination of such roles or functions as it may determine will most effectively contain the rising costs of the varying kinds of hospitals and related health care institutions in Washington state. In determining its functions or roles in relation to federal efforts, the commission shall seek to ensure coordination, and the reduction of duplicatory cost containment efforts, by the state and federal governments, as well as the diligent fulfillment of the purposes of this chapter and declared public policy and legislative intent herein.

Nothing in this chapter limits the ability of the department of social and health services to establish hospital payment rates pursuant to RCW 74.09.120 or in accord with a federally approvable state plan under Title XIX of the federal social security act.

NEW SECTION. Sec. 7. Sections 1 through 4 of this act shall constitute a new chapter in Title 48 RCW.