20-120

20-120. Payment bonds for third party
intermediary entities; contract provisions; definitions

A. A health care insurer shall not contract with a third party intermediary entity
for the delivery or provision of health benefits or services by or through that entity to
a group or panel of covered persons, unless the third party intermediary entity at its
own expense secures a payment bond or posts a cash deposit pursuant to this section.

B. The following apply to a payment bond required by this section:

1. The payment bond shall be in a face amount that is at least equal to the average
monthly payment amount that the third party intermediary entity is entitled to receive
under the terms of its contract with the health care insurer.

2. The payment bond shall be executed by a surety company or companies holding a
certificate of authority to transact surety business in this state issued by the director
pursuant to chapter 2, article 1 of this title.

3. The payment bond serves solely as a source of payment of claims for covered
health benefits or services provided by subcontracted health care professionals to the
group or panel of covered persons under the contract between the third party intermediary
entity and the health care insurer.

4. A subcontracted health care professional who has provided covered health care
benefits or services to one or more covered persons under a subcontract with a third
party intermediary entity, and who has not been paid in full for the covered benefits or
services provided pursuant to the subcontract within ninety days after the date on which
the last of the benefits or services were provided, may sue on the payment bond for the
unpaid amount owed under the subcontract, may prosecute the action to final judgment and
may execute on the judgment against the payment bond. The suit shall commence within one
year after the date on which the last of the benefits or services sued for were provided.

5. A health care insurer that pays claims of subcontracted health care
professionals for covered health care benefits or services that were the contractual
responsibility of a third party intermediary entity may sue on the payment bond for the
claims amounts paid, may prosecute the action to final judgment and may execute on the
judgment against the payment bond. The suit shall commence within one year after the date
on which the last of the claims sued for were paid.

6. The payment bond shall include a provision allowing the prevailing party in a
suit on the bond to recover as a part of the judgment a reasonable attorney fee as
determined by the court.

7. A health care insurer shall review annually a payment bond secured pursuant to
this section to determine whether the face amount of the payment bond needs to be
adjusted.

C. The following apply to cash deposits required by this section:

1. A cash deposit posted pursuant to this section shall be in an amount that is at
least equal to the average monthly payment amount that the third party intermediary
entity is entitled to receive under the terms of its contract with the health care
insurer and shall be deposited with and held in trust by the state treasurer.

2. Instead of requiring a third party intermediary to post the entire cash deposit
at the outset, for a six month period beginning with the initial contract payment, the
health care insurer may withhold from the monthly contract payment to be made to the
third party intermediary entity an amount that is equal to one-sixth of the cash deposit
required to be posted pursuant to this subsection. The health care insurer shall transfer
the monies withheld pursuant to this subsection for deposit with the state treasurer to
be held in trust as provided in this section. Monies withheld and not yet deposited with
the state treasurer pursuant to this subsection are held in trust for the purposes
described in this section and are not the monies of the health care insurer.

3. A cash deposit made pursuant to this section serves solely as a source of
payment of claims for covered health benefits or services provided by subcontracted
health care professionals to the group or panel of covered persons under the contract
between the third party intermediary entity and the health care insurer.

4. A subcontracted health care professional who has provided covered health care
benefits or services to one or more covered persons under a subcontract with a third
party intermediary entity and who has not been paid in full for the provided benefits or
services pursuant to the subcontract within ninety days after the date on which the last
of the benefits or services were provided, may sue on the cash deposit for the unpaid
amount owed under the subcontract, may prosecute the action to final judgment and may
execute on the judgment against the cash deposit. The suit shall commence within one year
after the date on which the last of the benefits or services sued for were provided.

5. A health care insurer that pays claims of subcontracted health care
professionals for covered health care benefits or services that were the contractual
responsibility of a third party intermediary entity may sue on the cash deposit for the
claims amounts paid, may prosecute the action to final judgment and may execute on the
judgment against the cash deposit. The suit shall not commence before one year after the
date on which the last of the claims sued for were paid.

6. Out of monies held on deposit by the state treasurer for a specific third party
intermediary entity pursuant to this section, monies may be awarded and paid to the
prevailing party in a suit on the cash deposit. The court may award as a part of the
judgment on that cash deposit a reasonable attorney fee as determined by the court.

7. A health care insurer shall review annually a cash deposit posted pursuant to
this section to determine whether the face amount needs to be adjusted.

D. The following apply to contracts between a third party intermediary entity and a
health care insurer:

1. The contract shall require the third party intermediary entity to submit a
quarterly report on the timeliness of payments made to all subcontracted health care
professionals to the health care insurer to measure compliance with payment timeliness
standards.

2. The contract shall require the third party intermediary entity to pay its
subcontracted health care professionals within the time period specified under section
20-3102.

E. This section does not:

1. Authorize any entity that does not hold a certificate of authority to engage in
the business of insurance in this state.

2. Require a third party intermediary entity to post a payment bond or cash deposit
if the entity holds a certificate of authority as an administrator, disability insurer,
service corporation or health care services organization.

3. Create any new private right or cause of action for or on behalf of any person,
other than a right to sue on a payment bond or cash deposit under subsection B or C of
this section. A general creditor or judgment creditor or any other claimant of a third
party intermediary entity shall not levy on any payment bond or cash deposit secured or
held pursuant to this section.

4. Require a third party intermediary entity that serves as a provider network for
an affiliated staff or group model health care services organization under a common line
of ownership or control to post a payment bond or cash deposit to that health care
services organization. Notwithstanding that a payment bond or cash deposit is not
required under this paragraph, the health care services organization may require the
third party intermediary entity to meet other payment bond or cash deposit requirements
established by the health care services organization. If the health care services
organization does not require the third party intermediary entity to post a payment bond
or cash deposit, the health care services organization is responsible for payment of
claims for covered health benefits or services that are provided by subcontracted health
care professionals to covered persons if the third party intermediary entity fails to
make payment pursuant to the subcontracts.

5. Require one or more persons who are licensed health care professionals,
hospitals or other institutional health care providers to post a payment bond or cash
deposit under a contract where the assumption of business risk is limited to benefits or
services that may be lawfully furnished within the lawful scope of practice by that
person or persons.

6. Limit the ability of a health care insurer to impose additional financial
requirements on a third party intermediary entity.

7. Require a third party intermediary entity to post a payment bond or cash deposit
if the entity has not been delegated responsibility to process and pay the claims of the
health care providers for which the entity has assumed the business risk.

F. Any bond that is secured or deposit that is posted under this section shall be
released and returned:

1. To the third party intermediary entity on extinguishment by reinsurance or
otherwise of substantially all liability of the insurer for the security of which the
bond or deposit is held.

2. To the third party intermediary entity to the extent the bond or deposit is more
than the amount required.

3. On proper order of a court of competent jurisdiction to the receiver,
conservator, rehabilitator or liquidator of the third party intermediary entity or to any
other properly designated official or officials who succeed to the management and control
of the third party intermediary entity's assets.

G. A surety shall not terminate a bond issued pursuant to this section unless the
surety files a written notice of termination with the director at least thirty days
before terminating the bond.

H. A release of deposited monies shall not be made except on application to and the
written order of the director. The director is not personally liable for the good faith
release of all or any part of a deposit.

I. A third party intermediary entity shall approve or deny claims in the manner
prescribed in chapter 20 of this title.

J. This section applies to all contracts between third party intermediary entities
and health care insurers that are entered into or renewed from and after December 31,
2000.

K. For the purposes of this section:

1. "Administrator" means an entity that holds a certificate of authority pursuant
to chapter 2, article 9 of this title.

2. "Covered persons" means enrollees, insureds, members, subscribers, dependents or
other persons who are covered by a contract of disability insurance, subscription
contract, evidence of coverage or other prepaid plan or arrangement with a health care
insurer.

3. "Health care insurer" means a disability insurer, service corporation or health
care services organization.

4. "Health care professional" has the same meaning prescribed in section 20-3151.

5. "Health care services organization" means an entity that holds a certificate of
authority pursuant to chapter 4, article 9 of this title.

6. "Service corporation" means an entity that holds a certificate of authority
pursuant to chapter 4, article 3 of this title.

7. "Third party intermediary entity" means an entity that assumes business risk
through a written contract with a disability insurer, service corporation or health care
services organization for the cost of providing covered health care benefits or services
to a group or panel of covered persons if not all of those benefits or services will be
provided by the entity or by licensed health care professionals who are subcontracted to
the entity.