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 and as specified in the contract between HHSC and the HMO.

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.
   6. (6) The state reserves the right to modify the rebate method in this subsection for purposes of establishing incentive programs to encourage HMO's to meet or exceed goals and objectives of the Medicaid Managed Care Program established by the Commission through its contract.
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, which 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) Effective for the SFY 2003 contract period, the tiered methodology is applied to the sum of the Net Income Before Taxes for all STAR, STAR+PLUS HMO, and Children's Health Insurance Plan (CHIP) service areas.
7. (g) HHSC is 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; amended to be effective August 10, 2005, 30 TexReg 4466.