(b) In evaluating the financial condition of an HMO, the Department will ascertain whether one or more of the following are present in an IDS contract:

1. (1) An appropriate provision similar to the hold harmless provision described in § 301.122 (relating to hold harmless), prohibiting the IDS and participating providers from billing HMO members.
2. (2) A provision for the maintenance of books, accounts and records by the IDS to assure that transactions, including the risk transfer, are clearly, accurately and completely disclosed.

3. (3) Appropriate terms permitting the HMO to assure itself of the financial viability and condition of the IDS throughout the term of the contract. These terms might include one or more of the following:

   1. (i) A provision authorizing the HMO to access the IDS’s books, accounts and records upon terms and conditions as the HMO and the IDS may agree.
   2. (ii) A provision requiring that the IDS secure an audited financial statement on at least an annual basis and that the HMO receive the audited statement on an annual basis and interim unaudited financial statements from the IDS on a regular and ongoing basis.
   3. (iii) A provision authorizing the HMO to receive information regarding the IDS’s reserves so that the HMO may adequately evaluate its reserves.
   4. (iv) A provision for the IDS to post a letter of credit or other acceptable financial security, in a reasonable amount as agreed upon between the HMO and IDS.
   5. (v) A provision establishing a withholding of the fee in a reasonable amount as agreed upon between the HMO and IDS and which may be returned to the IDS under the terms of the contract.
   6. (vi) A provision for the IDS to carry general liability insurance and for participating providers to carry professional liability insurance in an amount and from a carrier mutually acceptable to the HMO and the IDS.
   7. (vii) A provision for the IDS to secure a surety bond to cover the IDS’s performance under the contract.
   8. (viii) A provision for the IDS to secure excess of loss insurance in an amount and from a carrier mutually acceptable to the HMO and the IDS.
4. (4) A provision prohibiting the assignment of any rights or obligations under the contract in the absence of the consent of the HMO.
5. (5) A provision granting the HMO the right to be advised of, and the right to object to, any subcontractor of the IDS with respect to services required to be performed by the IDS under the contract with the HMO.
6. (6) Appropriate provisions for the termination of the contract, including consideration of whether the HMO has the right to immediately terminate the contract upon a valid order issued by the Commissioner or other lawful authority.
7. (7) A provision setting forth the circumstances under which the HMO may institute an appropriate financial monitoring plan of the IDS.
8. (8) A provision requiring that the IDS carry appropriate insurance coverage, such as fidelity bonds covering IDS employes who handle HMO funds and workers’ compensation insurance.

9. (9) A provision requiring that the IDS timely advise the HMO of relevant matters that may have a material effect on the IDS’s ability to perform under the contract, including, for example, the following:

   1. (i) Whether the IDS or a participating provider is subject to an administrative order, cease and desist order, fine or license suspension.
   2. (ii) Whether legal action has been taken which may have a material effect on the IDS’s financial condition or the IDS’s ability to perform under the contract.

(c) The Department may seek additional information if one or more of the following exist:

1. (1) A contract by which 50% or more of the HMO’s annual aggregate premium is transferred to a single IDS.
2. (2) Multiple contracts by which 75% or more of the HMO’s annual aggregate premium is transferred to one or more IDSs.
3. (3) A contract with an IDS that has control of the HMO. The Department presumes that control exists if an individual or entity, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing 10% or more of the voting securities of any other entity.
4. (4) A contract by which the claims processing, claims payment or claims adjudication functions are transferred to the IDS.
5. (5) A contract by which managerial control of the HMO’s information system is transferred to the IDS.
6. (6) A contract when the HMO employs an individual who is also employed by the IDS.
7. (7) A contract when there is overlap between the officers or directors of the IDS and the HMO.
8. (8) A contract that contains a provision which might be construed as impeding or limiting the Department’s authority to examine the books, accounts and records of the HMO and other persons under section 903(b) and (c) of The Insurance Department Act of 1921 (40 P. S. § 323.3(b) and (c)).