Does a discount referral program that lists dentists or chiropractors offering a discount need an HMO license in Texas?

Texas AG Opinion JM-1167: Are Discount Health-Referral Programs Regulated Like HMOs?

Plain-English summary

The commissioner of the State Board of Insurance asked whether referral programs that "arrange for" enrollees to receive discounted services from a single type of health care provider, in exchange for a referral fee, are subject to regulation as health maintenance organizations. He described programs that have arrangements with individual providers such as dentists, optometrists, and chiropractors to offer discounted services to enrollees; the programs charge enrollees an up-front, monthly, quarterly, or annual referral fee and give them an ID card or a list of participating providers, but the referral fee is not shared with the providers, whose incentive to participate is simply more patient volume, and enrollees pay the providers directly (often at no extra cost beyond the discounted rate) for whatever care they actually receive.

The Attorney General concluded these programs are not regulated as health maintenance organizations. The Insurance Code's Health Maintenance Organization Act requires a certificate of authority for anyone establishing or operating an HMO, and defines a "single health care service plan," the category that would cover a referral arrangement tied to one type of provider, as one where the actual health care service is at least partly paid for in advance (prepaid), as opposed to just being indemnified against its cost. Because the fee charged by the referral programs described here goes to the program itself and is never passed to the providers as prepayment for care, and enrollees separately pay the providers directly for services actually rendered, there's no prepayment for the health care itself, so the programs don't meet the definition of a "single health care service plan" and aren't required to hold an HMO certificate of authority. The opinion added that these referral programs also don't count as an "insurance business" under the Insurance Code, since they lack risk distribution, so the State Board of Insurance has no regulatory hold on them either way, though the opinion noted other laws, including the Deceptive Trade Practices and Consumer Protection Act, corporate filing requirements, individual providers' own professional licensing statutes, and a separate law barring health care practitioners from paying people to steer patients to them, could still apply depending on the facts.

Currency note

This opinion was issued in 1990. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule mentioned here.

Who this opinion affected (as of 1990)

Discount referral program operators: The opinion confirmed that, as structured (fee kept by the program, no prepayment passed to providers, enrollees pay providers directly), these programs did not need an HMO certificate of authority from the State Board of Insurance and were not subject to regulation as an insurance business either.

Single health care service providers who joined these programs (dentists, optometrists, chiropractors, etc.): The opinion did not exempt these providers from their own professional licensing laws, or from a separate statute barring health care practitioners from paying anyone to secure patients for them.

Consumers enrolling in such programs: The opinion clarified these arrangements were not HMO coverage and would not carry the regulatory protections that come with HMO status, though general consumer-protection law, like the Deceptive Trade Practices and Consumer Protection Act, would still apply.

Common questions

If I pay a monthly fee to a program that gives me a discount card for a dentist, is that program regulated like an HMO in Texas?
Not under this opinion's analysis, if the fee stays with the program and isn't passed to the dentist as prepayment for care, and you pay the dentist directly and separately for whatever services you actually receive.

What's the legal difference between this kind of referral program and a real HMO?
According to the opinion, it comes down to prepayment: a "single health care service plan" regulated like an HMO requires that at least part of the actual health care service itself be paid for in advance, while a program that only charges a referral fee (kept by the program) for a discount list, with the patient paying the provider directly later, involves no such prepayment.

Is a discount referral program regulated by the State Board of Insurance under any other insurance law?
The opinion also concluded no, because these programs lack the "risk distribution" feature that characterizes an insurance business under the Insurance Code.

Does that mean these programs are completely unregulated?
No. The opinion noted the Deceptive Trade Practices and Consumer Protection Act, corporate filing laws if the program is incorporated, each participating provider's own professional licensing statutes, and a law barring health care practitioners from paying to secure patients, could all still apply depending on the facts.

Background and statutory framework

Insurance Code article 20A.03 requires anyone establishing or operating a "health maintenance organization" in Texas to first obtain a certificate of authority under the Health Maintenance Organization Act (Insurance Code chapter 20A). Article 20A.02(j) defines a "health maintenance organization" as any person who arranges for or provides a health care plan, or a single health care service plan, to enrollees on a prepaid basis. Article 20A.02(r) defines a "single health care service" as a health care service an enrolled population may reasonably need for a particular health need, provided by one or more state-licensed providers. Article 20A.02(s) defines a "single health care service plan" as a plan under which a person undertakes to provide, arrange for, pay for, or reimburse part of the cost of a single health care service, provided that part of the plan consists of arranging for or providing that service, as distinguished from indemnifying against its cost, on a prepaid basis, and that no part of the plan covers more than one type of health care need.

Applying those definitions, the opinion concluded the key requirement is that the single health care service itself be paid for, at least in part, in advance. In the referral programs described, the fee enrollees pay covers only being connected to a list of discount providers; it is not shared with the providers as prepayment toward the health care services those providers will render, and enrollees separately pay the providers directly (often at no cost above the discounted rate) when they actually receive care. Because there is no prepayment for the actual single health care service under that structure, the opinion concluded the programs do not meet the definition of a "single health care service plan" and are not health maintenance organizations subject to chapter 20A.

The opinion further concluded these programs also do not constitute an "insurance business" under the Insurance Code generally (citing Ins. Code arts. 1.10, 1.14, 1.14-1), because they lack the feature of "risk distribution" characteristic of insurance (citing 45 Tex. Jur. 3d Insurance Contracts and Coverage § 1 and Attorney General Opinions MW-455 (1982), H-344 (1974), WW-1475 (1962), and O-4986-A (1943)), so the programs fall outside the State Board of Insurance's regulatory authority entirely. The opinion noted, however, other laws could still apply: the Deceptive Trade Practices and Consumer Protection Act (Bus. & Com. Code § 17.41 et seq.) applies generally; a program organized as a corporation must comply with corporate filing requirements (Bus. Corp. Act art. 3.03); the individual health care providers participating in such programs remain subject to their own professional licensing laws (citing, as an example, the Texas Optometry Act, V.T.C.S. art. 4552-1.01 et seq.); and a separate statute, V.T.C.S. article 4505a, bars health care practitioners from employing anyone to secure patients, a provision the opinion flagged as potentially relevant depending on the specific facts of a given referral arrangement, without deciding the point since it wasn't squarely raised.

Citations

Statutes:

• Tex. Ins. Code arts. 20A.01, 20A.02, 20A.03 (Health Maintenance Organization Act)
• Tex. Ins. Code arts. 1.10, 1.14, 1.14-1
• Tex. Bus. & Com. Code § 17.41 et seq. (Deceptive Trade Practices and Consumer Protection Act)
• Bus. Corp. Act art. 3.03
• V.T.C.S. art. 4552-1.01 et seq. (Texas Optometry Act)
• V.T.C.S. art. 4505a

Related opinions (Texas Attorney General):

• MW-455 (1982); H-344 (1974); WW-1475 (1962); O-4986-A (1943)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-1167
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1990/jm1167.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

Mr. A. W. Pogue
Commissioner
State Board of Insurance
1110 San Jacinto
Austin, Texas 78701-1998

Opinion No. JM-1167

Re: Status of insurance programs in which applicants are referred, for a fee, to a single health care provider (RQ-1867)

Dear Commissioner Pogue:

You ask "whether referral programs that 'arrange for' services of health care providers to enrollees at a discount in return for a referral fee are subject to regulation as a health maintenance organization."

Insurance Code article 20A.03 provides in part that "no person shall establish or operate a health maintenance organization in this state . . . without obtaining a certificate of authority under this Act," and that "any person may apply to the commissioner [of insurance] for and obtain a certificate of authority to establish and operate a health maintenance organization in compliance with this Act." (The "Act" referred to in the quoted portions of article 20A.03 is the Health Maintenance Organization Act, codified as chapter 20A of the Insurance Code. See Ins. Code art. 20A.01.)

You say that the referral programs about which you are concerned

have "arrangements" with single service health care providers such as dentists, optometrists, and chiropractors either verbally or in writing which provide that each participating provider will offer discounted services to enrollees of the programs. Thereafter, the referral programs target and market prospective enrollees through agents and literature.

The plans offered to prospective enrollees are such that a referral fee is charged, whether an initial amount up front, monthly, quarterly or annually, and said enrollees either receive an I.D. card and/or a listing of participating providers which honor discounts on services.

The referral fees are received by the referral programs from enrollees [but] do not appear to be shared with the providers. The incentive for providers to participate is the potential for increased volume. Thus, enrollees make another payment to the providers directly. Often times, visits to providers are not at any additional cost to enrollees.

You ask first whether a payment by an enrollee in such a referral program in exchange for a list of single health care service providers who offer services at a discount constitutes "prepayment" within the meaning of subpart (s) of article 20A.02, which provision defines "single health care service plan."

"Health maintenance organization" is defined in subpart (j) of article 20A.02 as

any person who arranges for or provides a health care plan or a single health care service plan to enrollees on a prepaid basis. (Emphasis added.)

"Single health care service" is defined in subpart (r) of article 20A.02 as

a health care service that an enrolled population may reasonably require in order to be maintained in good health with respect to a particular health care need for the purpose of preventing, alleviating, curing, or healing human illness or injury of a single specified nature and that is to be provided by one or more persons each of whom is licensed by the state to provide that specific health care service.[1]

"Single health care service plan" is in turn defined in subpart (s) of article 20A.02 as

a plan under which any person undertakes to provide, arrange for, pay for, or reimburse any part of the cost of a single health care service, provided, that a part of the plan consists of arranging for or the provision of the single health care service, as distinguished from an indemnification against the cost of that service, on a prepaid basis through insurance or otherwise and that no part of that plan consists of arranging for the provision of more than one health care need of a single specified nature. (Emphasis added.)

We think that the definition of "single health care service plan" in subpart (s) indicates that under such a plan the provision of single health care services is, at least in part, paid for in advance. The referral programs you describe charge a fee for "referring" enrollees to a list of single health care service providers, but do not, as you describe them, pay any part of that fee to the providers for the latter's provision of health care services to the enrollees. Under this scenario, there is no prepayment for the actual health care services eventually provided. Those programs thus do not involve the "arranging for or the provision of the single health care service . . . on a prepaid basis" under the definitional provisions of article 20A.02, subpart (s), and thus do not constitute "single health care service plans."

We understand your second question to be essentially the same question as the one described above. Our answer is the same.

You ask finally: if the referral programs do not come within the definition of "single health care service plans," and the programs are thus not "health maintenance organizations" under chapter 20A and subject to regulation as such by the commissioner and the State Board of Insurance, which agencies, if any, have regulatory authority or jurisdiction over such programs? We cannot give an exhaustive answer to this question; however, we can point out some relevant provisions.

In addition to health maintenance organizations, the State Board of Insurance has authority generally over the business of insurance in this state. See, e.g., Ins. Code arts. 1.10, 1.14, 1.14-1. However, the referral plans you describe appear to lack the feature of "risk distribution." See 45 Tex. Jur. 3d Insurance Contracts and Coverage § 1 (and authorities cited therein); see also Attorney General Opinions MW-455 (1982); H-344 (1974); WW-1475 (1962); O-4986-A (1943) (and authorities cited in those opinions). Having concluded that a referral program such as you describe is not a health maintenance organization subject to regulation by the State Board of Insurance under chapter 20A, we also conclude that neither does such a program constitute an insurance business under the Insurance Code. Such programs are thus not subject to regulation by the State Board of Insurance.

Of course the programs would be generally subject to state laws, for example, the Deceptive Trade Practices and Consumer Protection Act. Bus. & Com. Code § 17.41 et seq. If they are corporations, they must comply with the laws applicable thereto. See, e.g., Bus. Corp. Act art. 3.03 (filing of articles of incorporation with the secretary of state). Also, the health care service providers to whom the referral programs refer their enrollees would be subject to regulation by their respective licensing agencies, and to laws governing their professions. See, e.g., V.T.C.S. art. 4552-1.01 et seq. (the Texas Optometry Act).

Although you do not raise, and we consequently do not address in detail here, any other issues with respect to the lawfulness of such referral practices, we note finally that provisions of law other than those in the Health Maintenance Organization Act may, depending on the facts of the particular case, restrict such operations. See generally V.T.C.S. art. 4505a (prohibits health care practitioners from employing any person to secure patients).

SUMMARY

Referral programs that "arrange for" services of single health care service providers at a discount to enrollees in return for a referral fee are not "single health care service plans" under the Insurance Code article 20A.02, relating to health maintenance organizations, where there is no prepayment for the actual single health care services provided.

MATTOX
Attorney General of Texas

MARY KELLER
First Assistant Attorney General

JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General

RENEA HICKS
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by William Walker
Assistant Attorney General

Footnotes

1. Also, "health care services" is defined in subpart (i) of article 20A.02 as any services, including the furnishing to any individual of medical or dental care, or hospitalization or incident to the furnishing of such care or hospitalization, as well as the furnishing to any person of any and all other services for the purpose of preventing, alleviating, curing or healing human illness or injury or a single health care service plan.