1. (a) Each health maintenance organization (HMO) participating in the State of Texas Access Reform (STAR) and the State of Texas Access Reform Plus (STAR+Plus) program must pay to the state an experience rebate calculated according to the graduated rebate method described in subsection (b) of this section. The experience rebate is based on the excess of allowable HMO revenues, as defined by the state, over allowable HMO expenses, as defined by the state, as reviewed and confirmed by the state.

2. (b) The graduated rebate method is as follows:

   1. (1) The HMO retains 100 percent of that portion of excess allowable revenues that falls between zero and less than or equal to three percent of total allowable revenues.
   2. (2) The HMO retains 75 percent of that portion of excess allowable revenues that falls between three percent and less than or equal to seven percent of total allowable revenues. The remaining 25 percent is paid to the state.
   3. (3) The HMO retains 50 percent of that portion of excess allowable revenues that falls between seven percent but less than or equal to 10 percent of total allowable revenues. The remaining 50 percent is paid to the state.
   4. (4) The HMO retains 25 percent of that portion of excess allowable revenues that falls between 10 percent but less than or equal to 15 percent of total allowable revenues. The remaining 75 percent is paid to the state.
   5. (5) The HMO pays to the state 100 percent of that portion of excess allowable revenues that is greater than 15 percent of total allowable revenues.
3. (c) The experience rebate is based on a pre-tax basis.
4. (d) Losses incurred for one contract period can only be carried forward to the next contract period.
5. (e) There are two settlements for payment of the experience rebate and will be paid by the HMO to the state as prescribed by the state. The state reserves the right to make corrections to the settlements based on an audit/review by the state or other documentation acceptable to the state. The state may also adjust the experience rebate if the state determines that the HMO paid affiliates amounts for goods or services that are higher than the fair market value of the goods and services in the service area.
6. (f) The state has the final authority in assessing the amount of the experience rebate.

Source Note:The provisions of this §353.3 adopted to be effective August 20, 2000, 25 TexReg 7629.