ADOPTED RULES An agency may take final action on a section 30 days after a proposal has been published in the Texas Register. The section becomes effective 20 days after the agency files the correct document with the Texas Register, unless a later date is specified or unless a federal statute or regulation requires implementation of the action on shorter notice. If an agency adopts the section without any changes to the proposed text, only the preamble of the notice and statement of legal authority will be published. If an agency adopts the section with changes to the proposed text, the proposal will be republished with the changes. TITLE I. ADMINISTRATION Part III. Office of the Attorney General Chapter 55. Child Support Enforcement Subchapter H. License Suspension 1 TAC sec.55.215 The Office of the Attorney General adopts new sec.55.215, providing for additional prerequisites for suspension of licenses relating to state taxes, with changes to the proposed text as published in the February 6, 1996, issue of the Texas Register (21 TexReg 821). The following subsections of the rule were changed: sec.55.215(b) and (c) were eliminated, (d) was denominated (b), and (e) was denominated (c). This rule prescribes additional prerequisites for the suspension of licenses relating to state taxes for the implementation of Family Code, Chapter 232. This rule specifies additional prerequisites for petitions seeking to suspend licenses relating to State taxes, and specifies when, where, and how an order suspending a license relating to state taxes should be served on the respective licensing authority. This rule affects the Family Code, Chapter 232. The following groups or associations submitted comments: Texas Alcoholic Beverage Commission and State Comptroller. Comments received are summarized as follows: Subsections (b) and (c) of the proposed rule, while they do not vitiate the rule, are unnecessary. The Act already requires suspension of all license held by an obligor. However, these subsections seem to require the petition to simultaneously seek all licenses and permits held by an obligor, which, though in practice this is advisable, might become a problem if used to invalidate a petition where, through oversight or otherwise, the suspension of another license or permit held by an obligor is omitted. The proper approach would be to proceed against the license or permit seriatim. A licensing authority should not be responsible for performing a records search for a companion license or permit, for example, a sales tax permit and mixed beverage license, from another licensing authority. The Office of the Attorney General has made changes as suggested by the comments to the rule. Neither the statute, nor anything in these rules require a licensing agency to perform a records search for a license held by an obligor subject to a suspension order that is not identified in the suspension order. The suspension order must contain sufficient information to identify the license or licenses issued to the obligor by the licensing agency which have been suspended by the order. The new section is adopted under the Family Code, sec.232.015, which provides the Office of the Attorney General with the authority to adopt rules regarding state taxes and under the Family Code, sec.232.106, which provides the Office of the Attorney General with the authority to prescribe forms and procedures for the implementation of Chapter 232. sec.55.215. Prerequisites for Suspension of Licenses Relating to State Taxes. (a) Each petition seeking to suspend a license relating to state taxes shall list each license to be suspended by license type and, if applicable, by license number. (b) An order suspending a license issued pursuant to the Tax Code, sec.155.041 shall be served on the agency issuing the license. Through August 31, 1996, the agency issuing the license shall notify the Comptroller of Public Accounts of the receipt of the order. After August 31, 1996, the order shall be issued directly to the Comptroller of Public Accounts. (c) An order suspending a license relating to state taxes must be served on each licensing authority which issued a license suspended by the order. This agency hereby certifies that the adoption have been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 8, 1996. TRD-9603345 Suzanne Formby Marshall Special Assistant, Attorney General Office of the Attorney General Effective date: March 29, 1996 Proposal publication date: February 6, 1996 For further information, please call: (512) 305-4291 Part V. General Services Commission Chapter 113. Central Purchasing Division Cooperative Purchasing Program 1 TAC sec.113.87, sec.113.88 The General Services Commission adopts an amendment to sec.113.87 and new sec.113.88, relating to Central Purchasing, without changes to the proposed text as published in the February 6, 1996, issue of the Texas Register (21 TexReg 821). The amendment and new section provide participants in the Cooperative purchasing program with an alternative to use an electronic purchasing system in accordance with Texas Local Government Code, sec.271.083 (Vernon Supplement 1996). Section 113.87 updates the responsibilities of the Cooperative Purchasing Program participants. The new sec.113.88 establishes guidelines for electronic purchasing system. No comments were received regarding adoption of the amendment and new section. The amendment and new section are adopted under the Government Code, Title 10, Subtitle D, Chapter 2155, which provides the General Services Commission with the authority to promulgate rules consistent with the Code. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 8, 1996. TRD-9603403 David Ross Brown Assistant General Counsel General Services Commission Effective date: March 29, 1996 Proposal publication date: February 6, 1996 For further information, please call: (512) 463-3960 TITLE 7. BANKING AND SECURITIES Part VII. State Securities Board Chapter 139. Exemptions by Rule or Order 7 TAC sec.139.17 The State Securities Board adopts new sec.139.17, concerning offers disseminated through the Internet, with changes to the proposed text as published in the December 12, 1995, issue of the Texas Register (20 TexReg 10461). In response to a comment received, the phrase "directly or indirectly" was added in subsections (a)(1) and (b)(1). Also, new subsection (c) was added to provide examples of statements meeting the requirement that the offer indicate the securities are not being offered for sale to any person in Texas. The new section provides guidance to persons using the Internet for securities offerings about whether registration is necessary in Texas. The new section exempts certain offers of securities disseminated through the Internet from the securities registration requirements-and, under certain circumstances, the dealer registration requirements-of The Securities Act, so long as the offer indicates that the securities are not being offered for sale to any person in Texas and certain other requirements are met. One comment letter was received on the rule proposal. That letter, from the Investment Company Institute, supported final adoption of the proposed rule but requested clarification of the requirement in subsections (a)(1) and (b)(1) that the offer indicate the securities are not being offered for sale directly or indirectly to any person in Texas. The Board agrees and the section as adopted incorporates changes to address this concern. The new section is adopted under Texas Civil Statutes, Article 581, sec.28-1 and sec.5.T. Section 28-1 provides the Board with the authority to adopt rules and regulations necessary to carry out and implement the provisions of The Securities Act, including rules and regulations governing registration statements and applications; defining terms; classifying securities, persons, and matters within its jurisdiction; and prescribing different requirements for different classes. Section 5.T provides that the Board may prescribe new exemptions by rule. sec.139.17. Offers Disseminated Through the Internet. (a) An offer of securities not made from Texas is exempt from the securities and dealer registration requirements of The Securities Act when that offer is disseminated through the Internet and: (1) the offer indicates, directly or indirectly, that the securities are not being offered for sale to any person in Texas; (2) an offer is not otherwise specifically directed to any person in Texas by, or on behalf of, the issuer; and (3) no sales of the issuer's securities are made to any person in Texas as a result of the offer. (b) An offer of securities made from Texas is exempt from the securities registration requirements of The Securities Act, but not from the dealer registration requirements of The Securities Act, when that offer is disseminated through the Internet and: (1) the offer indicates, directly or indirectly, that the securities are not being offered for sale to any person in Texas; (2) an offer is not otherwise specifically directed to any person in Texas by, or on behalf of, the issuer; and (3) no sales of the issuer's securities are made to any person in Texas as a result of the offer. (c) Subsections (a)(1) or (b)(1) of this section is met by inclusion of any of the following statements, or a substantially similar one, in an offer disseminated through the Internet. (1) "These securities are not being offered or sold in Texas." (2) "These securities are being offered and sold in (fill in names of states other than Texas)." (3) "This is neither a solicitation to buy nor an offer to sell to persons in Texas." This agency hereby certifies that the adoption have been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 6, 1996. TRD-9603176 Denise Voight Crawford Securities Commissioner State Securities Board Effective date: March 27, 1996 Proposal publication date: December 12, 1995 For further information, please call: (512) 305-8300 TITLE 22. EXAMINING BOARDS Part IV. Texas Cosmetology Commission Chapter 89. General Rules and Regulations 22 TAC sec.89.31 The Texas Cosmetology Commission adopts an amendment to sec.89.31, concerning giving exams and translators, without changes to the proposed text as published in the November 17, 1995, issue of the Texas Register (20 TexReg 9527). The reason for and purpose of the rule is for administrative convenience and monetary savings to the Texas Cosmetology Commission. By conducting examinations in English and Spanish, the commission will be able to change or adjust examination questions and materials with significant reduction in costs. The ability to frequently change examination questions and materials is important to ensure the integrity and validity of the examination. Commission experience showed that when students taking examinations in a language other than English or Spanish brought a translator, there was no reliable way to determine what was being communicated between translator and examinee. The commission believes that since many other activities in Texas are conducted in English and Spanish (such as voting), that conducting the examination in English and Spanish is reasonable and also necessary. Comments were received from Mims Classic Beauty College in favor of the proposed rule change; and comments from Dr. Tinh Van Tran as president of the Vietnamese American Community of Houston and several Vietnamese students from Jones Beauty College in Grand Prairie were received against the proposed rule change. All of these comments felt the rule change unfairly discriminated against Vietnamese students and could hinder their efforts to complete licensure requirements and thus become productive, tax-paying citizens and workers. The commission disagrees since experience indicates that there is no discrimination since most patrons and cosmetologists speak English and are taught in English or Spanish. The commission adopted the rule change due to economic savings versus the cost of testing in multiple languages. The commission also adopted the rule to maintain examination integrity and validity. The factual basis for the rule is that the examination will be given in English and Spanish only except as provided by subparagraph (B) to ease administrative burden, save money and maintain examination validity and integrity. The amendment is adopted under Texas Civil Statutes, Article 8451a, sec.4(a), which provide the Texas Cosmetology Commission with the authority to issue rules consistent with this Act after a public hearing, including the rule governing the conduct of examinations. This agency hereby certifies that the adoption have been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on February 1, 1996. TRD-9603166 Dick Strader Executive Director Texas Cosmetology Commission Effective date: March 27, 1996 Proposal publication date: November 17, 1995 For further information, please call: (512) 454-4674 Part XV. Texas State Board of Pharmacy Chapter 291. Pharmacies Community Pharmacy (Class A) 22 TAC sec.sec.291.31-291.34, 291.36 The Texas State Board of Pharmacy adopts amendments to sec.sec.291.31-291.34 and sec.291.36, concerning Definitions, Personnel, Operational Standards, and Records in a Community Pharmacy (Class A) and Class A Pharmacies Compounding Sterile Pharmaceuticals, with changes to the proposed text as published in the October 6, 1995, issue of the Texas Register (20 TexReg 8153). The amendments implement most of the recommendations of the Board appointed Task Force on Pharmacy Technicians, by specifying the minimum qualifications and training requirements for supportive personnel in Class A Pharmacies. In addition, the amendments to these sections prohibit an animal from being kept within a pharmacy and from immediately adjacent areas under the control of the pharmacy, remove references to the Class F Pharmacy license which was eliminated by House Bill 1408 passed by the 74th Texas Legislature, clarify the requirements for dispensing a dosage form other than that prescribed by the practitioner, and specify procedures for electronic transmission of prescriptions from practitioners to pharmacies. A total of 32 comments were received regarding adoption of the amendments. Eighteen of the comments were oral comments received at a public hearing on the rules held on November 14, 1995 and 14 persons submitted written comments regarding the rules. The changes to the proposed text and reasons for these changes are as follows: Section 291.31 and sec.291.36(b)-Definitions Comment: Representatives from the Coalition for Nurses in Advanced Practice, Texas Academy of Physician Assistants, Texas Medical Association and Texas Nurses Association suggested that the definitions for "designated agent" and "prescription drug order" be updated to include changes made by Senate Bill 673 passed during the 74th Legislative Session. In addition, these representatives suggested that the definition of "registered nurse" be deleted and the definition of "advanced practice nurse" be added to the section. Response: The Board agrees with these comments and changes have been made to reflect the recommendations. In addition, at the recommendation of staff, the definition of "carrying out a prescription drug order" has been amended to reflect changes made with the passage of Senate Bill 673. Other changes have been made throughout the rules to reflect the provisions of Senate Bill 673. For example, the term "registered nurse" has been replaced with "advanced practice nurse" throughout the rules. Comment: Representatives from the Texas Federation of Drug Stores, Texas Pharmacy Association, and one individual suggested that the words "over telephone lines" be deleted from the definition of an electronic prescription drug order. Response: The Board agrees with this comment and changes have been made in this definition. Comment: Representatives from the Texas Federation of Drug Stores and one individual suggested that the phrase, "or through the use of direct imaging to store the data" be added to subparagraph (B) of the definition of "original prescription drug order" to allow these records to be stored electronically. Response: The Board disagrees with this comment because language to allow electronic storage of these records is already included in the records section of the rules. Section 291.32(b)(2) and sec.291.36(c)(2)(B) -Personnel -Pharmacists-Duties Comment: Representatives of the Texas Federation of Drug Stores, Texas Society of Health-System Pharmacists, Texas Pharmacy Association, and three individuals questioned the addition of the phrase: "No employer or supervisor may interfere with or impair the proper exercise of a pharmacist professional judgement in designating and delegating duties to supportive personnel." Response: The Board agrees that rather than clarifying, the addition of this phrase appears to be causing confusion. Therefore, the phrase has been eliminated from the final language. However, the Board has added language to emphasize that the pharmacist is responsible for verifying the accuracy of all acts, tasks, or functions performed by technicians. Comment: Representatives from the Texas Federation of Drug Stores, Texas Pharmacy Association, and the Texas Society of Health-System Pharmacists and five individuals were in favor of deleting "affixing the label to the dispensing container" from the list of duties that could only be performed by pharmacists. Four individuals commented against the deletion of this language. Response: The Board vote regarding the deletion of this language was a tie (3- 3). Therefore, affixing the label to the prescription container will remain a duty of the pharmacist. Section 291.32(c)(1) and sec.291.36(c)(3)(A)-Personnel -Supportive personnel/pharmacy technicians-Qualifications Comment: Representatives from the Texas Federation of Drug Stores, Texas Pharmacy Association and eleven individuals commented against requiring that pharmacy technicians be high school graduates. One individual commented in favor of this requirement. Response: The Board agrees that person's enrolled in high school should be allowed to work as pharmacy technicians. The language has been modified to require that a pharmacy technician has to be currently enrolled in or have a high school degree. Comment: Representatives from the Texas Federation of Drug Stores, Texas Pharmacy Association and five individuals commented against the requirement that the training program be "site-specific" and suggested that the training should be transferable to another pharmacy if the pharmacies were under common management. Response: The Board agrees with these comments and has modified the language to delete the words "site-specific" and "at this pharmacy." In addition, the Board has added language to specify that a person receiving the training may transfer this training to another pharmacy if the pharmacies are under common ownership and have a common training program, and provided the pharmacist-in-charge at each pharmacy certifies that the technician is competent. Comment: A representative from the Texas Federation of Drug Stores expressed concern with the date August 1, 1995 as the date that technicians employed after that time must have a high school degree and suggested a "window" after the effective date of the rules-perhaps June 1, 1996. Response: The Board agrees with this comment and has changed the date to March 1, 1996. Comment: Representatives from the Texas Federation of Drug Stores, Texas Pharmacy Association, Texas Society of Health-System Pharmacists and two individuals either were against requiring all technicians to be certified by January 1, 2001 or questioned the requirement. Two individuals were in favor of this requirement. Response: The Board disagrees with the person's commenting against this requirement and the language remains as proposed. However, the Board agrees to monitor the issue for other possible alternatives. Section 291.32(c)(3) and sec.291.36(c)(3)(C)-Personnel -Supportive personnel/pharmacy technicians-Ratio Comment: The Texas Federation of Drug Stores and seven individuals suggested that the Board should change the ratio of pharmacists to technicians to at least one pharmacist to three technicians (1:3) rather that the current 1:2. Response: The Board disagrees with these comments and believes that a change in ratio is not appropriate at this time. No changes were made to this paragraph in sec.291.32. However sec.291.36(c)(3)(C) was modified to be consistent with the language in sec.291.32(c)(3). Section 291.32(c)(4) and sec.291.36(c)(3)(D)-Personnel -Supportive personnel/pharmacy technicians-Training In response to previous comments and at staff's recommendation, the Board has added to this section: (1) clarification that the training may be transferred to another pharmacy if the pharmacies are under common ownership and control and have a common training program; (2) a requirement that the pharmacist-in-charge must certify the competency of supportive personnel in writing. Section 291.32(c)(5) and sec.291.36(c)(3)(E)-Personnel -Supportive personnel/pharmacy technicians-Training Program Comment: Representatives of the Texas Federation of Drug Stores, Texas Pharmacy Association, and one individual suggested that the training outline in the rules were too detailed and too specific. Response: The Board agrees with these comments and has eliminated the detail and kept only the major headings in the outline of topics to be covered. In addition, the Board has added a requirement that the training manual include written procedures and guidelines for the use and supervision of supportive personnel. Section 291.33(b)(1)(G) and sec.291.36(d)(2)(A)(viii) -Operational Standards- Environment-General Requirements Comment: The Texas Federation of Drug Stores suggested that the last sentence of this subparagraph be amended to read: This provision does not apply to fish in aquariums, guide dogs, or animals for sale to the general public in a separate area that is inspected by local health jurisdictions" Response: The Board agrees with this comment and has amended the language. Section 291.33(c)(4) and sec.291.36(d)(3)(C)-Operational Standards-Prescription dispensing and delivery-Labeling The changes made in this section are to update the labeling provisions to reflect language in Senate Bill 673 passed by the 74th Legislature. Section 291.34(b)(2) and sec.291.36(e)(2)(B) Records-Prescriptions -Written prescription drug orders The changes made in this section are to update the prescription requirements to reflect language in Senate Bill 673 passed by the 74th Legislature. Section 291.34(b)(4) and sec.291.36(e)(2)(D) Records-Prescriptions -Electronic prescription drug orders Comment: One individual suggested that the Board consider allowing electronic transmission of controlled substance prescriptions from practitioners located in other states. Response: The Board disagrees with this comment because the Texas Controlled Substances Act allows Texas pharmacists to dispense controlled substances prescriptions written by practitioners in other states only if the pharmacist receives an original written prescription. Electronic prescription drug orders are considered to be the same as oral prescriptions and therefore electronic prescriptions from practitioners in other states cannot be dispensed under the current law. In addition, the phrase "communicated by telephone" contained at the end of sec.291.34(b)(4) and sec.291.36(e)(2)(D) has been deleted to be consistent with the earlier change in the definition of electronic prescription drug order. Section 291.34(b)(5) and sec.291.36(e)(2)(E) Records-Prescriptions - Prescription drug order information The changes made in this section are to update the labeling provisions to reflect language in Senate Bill 673 passed by the 74th Legislature. Section 291.36(c)(4) Personnel-Special education, training -Supportive personnel This section is returned to the language prior to proposal of the rules because of the change made earlier in the educational requirements for a technician. Section 291.36(d)(4)(B)(1) Operational Standards-Library The change made in this subparagraph is the correction of an error in previous language submitted to the Register. The error caused one reference to be listed twice. This has been corrected and one of the duplicate listings replaced with the correct "Remington's practice of Pharmacy." Section 291.36(e)(7) Records-Patient Medication Records (PMR) The change made in this paragraph is only a correction in the catch phrase by adding "Patient Medication Records (PMR). The amendments are adopted under the Texas Pharmacy Act (Texas Civil Statutes, Article 4542-1), sec.4, which specifies that the purpose of the Act is to protect the public through the effective control and regulation of the practice of pharmacy; sec.16(a), which gives the Board the authority to adopt rules for the proper administration and enforcement of the Act; sec.17(b)(2), which gives the Board the authority to specify minimum standards for professional environment, technical equipment, and security in the prescription dispensing area; sec.17(b)(3), which gives the Board the authority to specify minimum standards for drug storage, maintenance of prescription drug records and procedures for the delivery, dispensing in a suitable container appropriately labeled, providing of prescription drugs or devices, monitoring of drug therapy, and counseling of patients on proper use of prescription drugs and devices within the practice of pharmacy; sec.17(b)(4), which specifies that the Board has the responsibility for the adoption of rules regulating a prescription drug or medication order transmitted by electronic means; sec.17(o), which gives the Board the authority to establish rules for the use of supportive personnel and the duties of those personnel in pharmacies licensed by the Board; sec.40(d), which allows a pharmacist to dispense a dosage form of a drug product different from that prescribed; House Bill 1408 as passed by the 74th Legislature which eliminates the Class F Pharmacy license; Senate Bill 673 as passed by the 74th Legislature which allows physicians to delegate the signing of prescriptions to advanced practice nurses and physician assistants; and Senate Bill 659 as passed by the 74th Legislature which allows a physician to delegate medication therapy management to a pharmacist. The statutes affected by these amendments: Texas Civil Statutes, Article 4542a- 1. sec.291.31. Definitions. The following words and terms, when used in this subchapter, shall have the following meanings, unless the context clearly indicates otherwise. Act-The Texas Pharmacy Act, Texas Civil Statutes, Article 4542a-1, as amended. Automated drug dispensing system-An automated device that measures, counts, and/or packages a specified quantity of dosage units for a designated drug product. Advanced practice nurse-A registered nurse approved by the Texas State Board of Nurse Examiners to practice as an advanced practice nurse on the basis of completion of an advanced education program. The term includes a nurse practitioner, a nurse midwife, a nurse anesthetist, and a clinical nurse specialist. Board-The Texas State Board of Pharmacy. Carrying out or signing a prescription drug order-The completion of a prescription drug order presigned by the delegating physician, or the signing of a prescription by an advanced practice nurse or physician assistant after the person has been designated with the Texas State Board of Medical Examiners by the delegating physician as a person delegated to sign a prescription. The following information shall be provided on each prescription: (A) patient's name and address; (B) name, strength, and quantity of the drug to be dispensed; (C) directions for use; (D) the intended use of the drug, if appropriate; (E) the name, address, and telephone number of the physician; (F) the name, address, telephone number, and identification number of the advanced practice nurse or physician assistant completing the prescription drug order; (G) the date; and (H) the number of refills permitted. Component-Any ingredient intended for use in the compounding of a drug product, including those that may not appear in such product. Compounding-The preparation, mixing, assembling, packaging, or labeling of a drug or device: (A) as the result of a practitioner's prescription drug order or initiative based on the practitioner-patient-pharmacist relationship in the course of professional practice; (B) in anticipation of prescription drug orders based on routine, regularly observed prescribing patterns; or (C) for the purpose of or as an incident to research, teaching, or chemical analysis and not for sale or dispensing. Confidential record -Any health-related record maintained by a pharmacy or pharmacist, such as a patient medication record, prescription drug order, or medication order. Controlled substance A drug, immediate precursor, or other substance listed in Schedules I-V or Penalty Groups 1-4 of the Texas Controlled Substances Act, as amended, or a drug, immediate precursor, or other substance included in Schedules I, II, III, IV, or V of the Federal Comprehensive Drug Abuse Prevention and Control Act of 1970, as amended (Public Law 91-513). Dangerous drug -Any drug or device that is not included in Penalty Groups 1-4 of the Controlled Substances Act and that is unsafe for self-medication or any drug or device that bears or is required to bear the legend: (A) "Caution: federal law prohibits dispensing without prescription"; or (B) "Caution: federal law restricts this drug to use by or on the order of a licensed veterinarian." Data communication device-An electronic device that receives electronic information from one source and transmits or routes it to another (e.g., bridge, router, switch or gateway). Deliver or delivery -The actual, constructive, or attempted transfer of a prescription drug or device or controlled substance from one person to another, whether or not for a consideration. Designated agent - (A) a licensed nurse, physician assistant, pharmacist, or other individual designated by a practitioner to communicate prescription drug orders to a pharmacist; (B) a licensed nurse, physician assistant, or pharmacist employed in a health care facility to whom the practitioner communicates a prescription drug order; or (C) an advanced practice nurse or physician assistant authorized by a practitioner to carry out or sign a prescription drug order for dangerous drugs under the Medical Practice Act, sec.3.06(d)(5) or (6) (Texas Civil Statutes, Article 4495b). Dispense-Preparing, packaging, compounding, or labeling for delivery a prescription drug or device in the course of professional practice to an ultimate user or his agent by or pursuant to the lawful order of a practitioner. Distribute-The delivery of a prescription drug or device other than by administering or dispensing. Downtime-Period of time during which a data processing system is not operable. Drug regimen review-An evaluation of prescription drug orders and patient medication records for: (A) known allergies; (B) rational therapy-contraindications; (C) reasonable dose and route of administration; (D) reasonable directions for use; (E) duplication of therapy; (F) drug-drug interactions; (G) drug-food interactions; (H) drug-disease interactions; (I) adverse drug reactions; and (J) proper utilization, including overutilization or underutilization. Electronic prescription drug order-A prescription drug order which is transmitted by an electronic device to the receiver (pharmacy). Full-time pharmacist -A pharmacist who works in a pharmacy from 30 to 40 hours per week or, if the pharmacy is open less than 60 hours per week, one-half of the time the pharmacy is open. Hard copy-A physical document that is readable without the use of a special device (i.e., cathode ray tube (CRT), microfiche reader, etc.). Manufacturing-The production, preparation, propagation, conversion, or processing of a drug or device, either directly or indirectly, by extraction from substances of natural origin or independently by means of chemical or biological synthesis and includes any packaging or repackaging of the substances or labeling or relabeling of the container and the promotion and marketing of such drugs or devices. Manufacturing also includes the preparation and promotion of commercially available products from bulk compounds for resale by pharmacies, practitioners, or other persons but does not include compounding. Medical Practice Act-The Texas Medical Practice Act, Texas Civil Statutes, Article 4495b, as amended. Medication order -A written order from a practitioner or a verbal order from a practitioner or his authorized agent for administration of a drug or device. New prescription drug order-A prescription drug order for a drug not previously self administered by the patient. A new prescription includes a discharge prescription drug order but not a furlough prescription drug order. Original prescription -The: (A) original written prescription drug order; or (B) original verbal or electronic prescription drug order reduced to writing either manually or electronically by the pharmacist. Part-time pharmacist -A pharmacist who works less than full-time. Patient counseling -Communication by the pharmacist of information to the patient or patient's agent in order to improve therapy by ensuring proper use of drugs and devices. Pharmaceutical care -The provision of drug therapy and other pharmaceutical services intended to assist in the cure or prevention of a disease, elimination or reduction of a patient's symptoms, or arresting or slowing of a disease process. Pharmacist-in-charge-The pharmacist designated on a pharmacy license as the pharmacist who has the authority or responsibility for a pharmacy's compliance with laws and rules pertaining to the practice of pharmacy. Physician assistant -A physician assistant recognized by the Texas State Board of Medical Examiners as having the specialized education and training required under the Medical Practice Act, sec.3.06(d), and issued an identification number by the Texas State Board of Medical Examiners. Practitioner- (A) a physician, dentist, podiatrist, veterinarian, or other person licensed or registered to prescribe, distribute, administer, or dispense a prescription drug or device in the course of professional practice in this state; (B) a person licensed by another state in a health field in which, under Texas law, licensees in this state may legally prescribe dangerous drugs or a person practicing in another state and licensed by another state as a physician, dentist, veterinarian, or podiatrist, having a current Federal Drug Enforcement Administration registration number, and who may legally prescribe Schedule II, III, IV, or V controlled substances in such other state; or (C) a person licensed in the Dominion of Canada or the United Mexican States in a health field in which, under the laws of this state, a licensee may legally prescribe dangerous drugs; (D) does not include a person licensed under the Texas Pharmacy Act. Prepackaging-The act of repackaging and relabeling quantities of drug products from a manufacturer's original commercial container into a prescription container for dispensing by a pharmacist to the ultimate consumer. Prescription drug order- (A) a written order from a practitioner or a verbal order from a practitioner or his authorized agent to a pharmacist for a drug or device to be dispensed; or (B) a written order or a verbal order pursuant to the Medical Practice Act, sec.3. 06(d)(5) and (6). Prospective drug use review-A review of the patient's drug therapy and prescription drug order or medication order prior to dispensing or distributing the drug. Supportive personnel/Pharmacy technician-Those individuals utilized in pharmacies whose responsibility it shall be to provide technical services that do not require professional judgment concerned with the preparation and distribution of drugs under the direct supervision of and responsible to a pharmacist. Texas Controlled Substances Act-The Texas Controlled Substances Act, Health and Safety Code, Chapter 481, as amended. Written protocol -A physician's order, standing medical order, standing delegation order, or other order or protocol as defined by rule of the Texas State Board of Medical Examiners under the Texas Medical Practice Act, (Texas Civil Statutes, Article 4495b). sec.291.32. Personnel. (a) (No change.) (b) Pharmacists. (1) General. (A)-(B) (No change.) (C) Pharmacists are solely responsible for the direct supervision of supportive personnel and for designating and delegating duties, other than those listed in paragraph (2) of this subsection, to supportive personnel. Each pharmacist: (i) shall verify the accuracy of all acts, tasks, or functions performed by supportive personnel; and (ii) shall be responsible for any delegated act performed by supportive personnel under his or her supervision. (D) (No change.) (2) Duties. Duties which may only be performed by a pharmacist are as follows: (A)-(C) (No change.) (D) affixing the label to the prescription container and performing the final check of the dispensed prescription before delivery to the patient to ensure that the prescription has been dispensed accurately as prescribed; (E) communicating to the patient or patient's agent information about the prescription drug or device which in the exercise of the pharmacist's professional judgement, the pharmacist deems significant, as specified in sec.291.33(c) of this title (relating to Operational Standards); (F) communicating to the patient or the patient's agent on his or her request information concerning any prescription drugs dispensed to the patient by the pharmacy; (G) assuring that a reasonable effort is made to obtain, record, and maintain patient medication records; (H) interpreting patient medication records and performing drug regimen reviews; and (I) performing a specific act of drug therapy management for a patient delegated to a pharmacist by a written protocol from a physician licensed in this state in compliance with the Medical Practice Act (Texas Civil Statutes, Article 4495b). (3) (No change.) (c) Supportive personnel/pharmacy technician. (1) Qualifications. (A) All Supportive personnel shall: (i) have a high school or equivalent degree , e.g., G.E.D., or be currently enrolled in a program which awards such a degree; and (ii) complete a structured didactic and experiential training program, which provides instruction and experience in the areas listed in paragraph (4) of this subsection. (B) Supportive personnel employed in a pharmacy before March 1, 1996 are not required to comply with the education requirements listed in subparagraph (A)(i) of this paragraph, but must complete the training program specified in subparagraph (A)(ii) of this paragraph by January 1, 1997 or cease performing the duties of a supportive person. (C) All supportive personnel employed in a pharmacy on or after March 1, 1996 must meet the education requirements listed in subparagraph (A)(i) of this paragraph and complete the training program specified in subparagraph (A) (ii) of this paragraph by January 1, 1997 or cease performing the duties of a supportive person. (D) Effective January 1, 2001, all supportive personnel must have taken and passed the National Pharmacy Technician Certification Exam. (E) For the purpose of this subsection, supportive personnel are those persons who perform nonjudgmental technical duties associated with the dispensing of a prescription drug order. (2) Duties. (A) Supportive personnel may not perform any of the duties listed in subsection (b)(2) of this section. (B) A pharmacist may delegate to supportive personnel any nonjudgmental technical duty associated with the preparation and distribution of prescription drugs provided: (i) a pharmacist conducts in-process and final checks; and (ii) supportive personnel are under the direct supervision of and responsible to a pharmacist. (3) (No change.) (4) Training. (A) Supportive personnel shall complete initial training as outlined by the pharmacist-in-charge in a training manual, prior to the regular performance of their duties. Such training: (i) shall include training and experience as outlined in paragraph (5) of this subsection; and (ii) may not be transferred to another pharmacy unless: (I) the pharmacies are under common ownership and control and have a common training program; and (II) the pharmacist-in-charge of each pharmacy in which the supportive person works certifies that the supportive person is competent to perform the duties assigned in that pharmacy. (B) The pharmacist-in-charge shall assure the continuing competency of supportive personnel through in-service education and training to supplement initial training. (C) The pharmacist-in-charge shall document the completion of the training program and certify the competency of supportive personnel completing the training. A written record of initial and in-service training of supportive personnel shall be maintained and contain the following information: (i) name of the person receiving the training; (ii) date(s) of the training; (iii) general description of the topics covered; (iv) a statement or statements that certifies that the supportive person is competent to perform the duties assigned; (v) name of the person supervising the training; and (vi) signature of the supportive person and the pharmacist-in-charge or other pharmacist employed by the pharmacy and designated by the pharmacist-in-charge as responsible for training of supportive personnel. (5) Training program. Supportive personnel training shall be outlined in a training manual. Such training manual shall, at a minimum, contain the following: (A) written procedures and guidelines for the use and supervision of supportive personnel. Such procedures and guidelines shall: (i) specify the manner in which the pharmacist responsible for the supervision of supportive personnel will supervise such personnel and verify the accuracy and completeness of all acts, tasks, and functions performed by such personnel; and (ii) specify duties which may and may not be performed by supportive personnel; and (B) instruction in the following areas and any additional areas appropriate to the duties of supportive personnel in the pharmacy; (i) Orientation: (ii) Job descriptions: (iii) Communication techniques: (iv) Laws and rules: (v) Security and safety: (vi) Prescription drugs: (I) Basic pharmaceutical nomenclature; (II) Dosage forms; (vii) Prescription drug orders: (I) Prescribers; (II) Directions for use; (III) Commonly-used abbreviations and symbols; (IV) Number of dosage units; (V) Strengths and systems of measurement; (VI) Routes of administration; (VII) Frequency of administration; (VIII) Interpreting directions for use; (viii) Prescription drug order preparation: (I) Creating or updating patient medication records; (II) Entering prescription drug order information into the computer or typing the label in a manual system; (III) Selecting the correct stock bottle; (IV) Accurately counting or pouring the appropriate quantity of drug product; (V) Selecting the proper container; (VI) Preparing the finished product for inspection, labeling, and final check by pharmacists; (ix) Other functions: (x) Drug product prepackaging: (xi) Compounding of non-sterile pharmaceuticals: (xii) Written policy and guidelines for use of and supervision of supportive personnel. (d) (No change.) sec.291.33. Operational Standards. (a) Licensing requirements. (1) A Class. A pharmacy shall register annually with the board on a pharmacy license application provided by the board, following the procedures specified in sec.291.1 of this title (relating to Pharmacy License Application). (2) A Class. A pharmacy which changes ownership shall notify the board within ten days of the change of ownership and apply for a new and separate license as specified in sec.291.4 of this title (relating to Change of Ownership). (3) A Class. A pharmacy which changes location and/or name shall notify the board within ten days of the change and file for an amended license as specified in sec.291.2 of this title (relating to Change of Location and/or Name). (4) A Class. A pharmacy owned by a partnership or corporation which changes managing officers shall notify the board in writing of the names of the new managing officers within ten days of the change, following the procedures in sec.291.3 of this title (relating to Change of Managing Officers). (5) A Class. A pharmacy shall notify the board in writing within ten days of closing, following the procedures in sec.291.5 of this title (relating to Closed Pharmacies). (6) A separate license is required for each principal place of business and only one pharmacy license may be issued to a specific location. (7) A fee as specified in sec.291.6 of this title (relating to Pharmacy License Fees) will be charged for the issuance and renewal of a license and the issuance of an amended license. (8) A Class. A pharmacy, licensed under the provisions of the Act, sec.29(b)(1), which also operates another type of pharmacy which would otherwise be required to be licensed under the Act, sec.29(b)(2), concerning Nuclear Pharmacy (Class B), is not required to secure a license for such other type of pharmacy; provided, however, such licensee is required to comply with the provisions of sec.291.51 of this title (relating to Definitions), sec.291.52 of this title (relating to Personnel), sec.291.53 of this title (relating to Operational Standards), and sec.291.54 of this title (relating to Records), contained in Nuclear Pharmacy (Class B), to the extent such sections are applicable to the operation of the pharmacy. (9) A Class. A (community) pharmacy engaged in the compounding of sterile pharmaceuticals shall comply with the provisions of sec.291.36 of this title (relating to Class A Pharmacies Compounding Sterile Pharmaceuticals). (b) Environment. (1) General requirements. (A)-(F) (No change.) (G) Animals, including birds and reptiles, shall not be kept within the pharmacy and in immediately adjacent areas under the control of the pharmacy. This provision does not apply to fish in aquariums, guide dogs accompanying disabled persons, or animals for sale to the general public in a separate area that is inspected by local health jurisdictions. (2)-(3) (No change.) (c) Prescription dispensing and delivery. (1)-(3) (No change. ) (4) Labeling. (A) At the time of delivery of the drug, the dispensing container shall bear a label with at least the following information: (i)-(xi) (No change.) (xii) the name of the advanced practice nurse or physician assistant, if the prescription is carried out or signed by an advanced practice nurse or physician assistant in compliance with the Medical Practice Act, sec.3.06(d); and (xiii) (No change.) (B) (No change.) (d)-(i) (No change.) sec.291.34. Records. (a) (No change.) (b) Prescriptions. (1) (No change.) (2) Written prescription drug orders. (A)-(E) (No change.) (F) Prescription drug orders carried out or signed by an advanced practice nurse or physician assistant. (i) A pharmacist may dispense a prescription drug order for a dangerous drug which is carried out or signed by an advanced practice nurse or physician assistant provided: (I) the prescription is for a dangerous drug and not for a controlled substance; and (II) the advanced practice nurse or physician assistant is practicing in accordance with the Medical Practice Act, sec.3.06(d). (ii) Each practitioner shall designate in writing the name of each advanced practice nurse or physician assistant authorized to carry out or sign a prescription drug order pursuant to the Medical Practice Act, sec.3.06(d). A list of the advanced practice nurses or physician assistants designated by the practitioner must be maintained in the practitioner's usual place of business. On request by a pharmacist, a practitioner shall furnish the pharmacist with a copy of the written authorization for a specific advanced practice nurse or physician assistant. (G) (No change.) (3) (No change.) (4) Electronic prescription drug orders. For the purpose of this subsection, prescription drug orders shall be considered the same as verbal prescription drug orders. (A) An electronic prescription drug order may be transmitted by a practitioner or a practitioner's designated agent: (i) directly to a pharmacy; or (ii) through the use of a data communication device provided: (I) the prescription information is not altered during transmission; and (II) confidential patient information is not accessed or maintained by the operator of the data communication device unless the operator is authorized to receive the confidential information as specified in subsection (k) of this section. (B) A practitioner shall designate in writing the name of each agent authorized by the practitioner to electronically transmit prescriptions for the practitioner. The practitioner shall maintain at the practitioner's usual place of business a list of the designated agents. The practitioner shall provide a pharmacist with a copy of the practitioner's written authorization for a specific agent on the pharmacist's request. (C) A pharmacist may not dispense an electronic prescription drug order for a: (i) Schedule II controlled substance; (ii) Schedule III, IV, or V controlled substance issued by a practitioner licensed in another state unless the practitioner is also registered under the Texas Controlled Substances Act; or (iii) dangerous drug or controlled substance issued by a practitioner licensed in the Dominion of Canada or the United Mexican States unless the practitioner is also licensed in Texas. (D) The practitioner or practitioner's agent shall note any substitution instructions on the electronic prescription drug order. Such electronic prescription drug order may follow the two-line format indicated in paragraph (2)(B) of this subsection, or any other format that clearly indicates the subsection, or any other format that clearly indicates the substitution instructions. (5) Authorization for substitution. (A) Generic substitution. (i) A pharmacist may dispense a generically equivalent drug product if: (I)-(III) (No change.) (IV) the practitioner or practitioner's agent does not clearly indicate that the verbal or electronic prescription drug order shall be dispensed as ordered. (ii)-(iv) (No change.) (B) Substitution of dosage form. (i) A pharmacist may dispense a dosage form of a drug product different from that prescribed, such as a tablet instead of a capsule or liquid instead of tablets, provided; (I) the patient consents to the dosage form substitution; (II) the pharmacist notifies the practitioner of the dosage form substitution; and (III) the dosage form so dispensed: (-a-) contains the identical amount of the active ingredients as the dosage prescribed for the patient; (-b-) is not an enteric-coated or time release product; (-c-) does not alter desired clinical outcomes; (ii) Substitution of dosage form may not include the substitution of a product that has been compounded by the pharmacist unless the pharmacist contacts the practitioner prior to dispensing and obtains permission to dispense the compounded product. (6) Original prescription drug order records. (A) Original prescriptions shall be maintained by the pharmacy in numerical order and remain legible for a period of two years from the date of filling or the date of the last refill dispensed. (B) If an original prescription drug order is changed, such prescription order shall be invalid and of no further force and effect; if additional drugs are to be dispensed, a new prescription drug order with a new and separate number is required. (C) Original prescriptions shall be maintained in three separate files as follows: (i) prescriptions for controlled substances listed in Schedule II; (ii) prescriptions for controlled substances listed in Schedule III-V; and (iii) prescriptions for dangerous drugs and nonprescription drugs. (D) Original prescription records other than triplicate prescriptions may be stored on microfilm, microfiche, or other system which is capable of producing a direct image of the original prescription record, e.g., digitalized imaging system. If original prescription records are stored in a direct imaging system, the following is applicable: (i) the record of refills recorded on the original prescription must also be stored in this system; (ii) the original prescription records must be maintained in numerical order and separated in three files as specified in subparagraph (C) of this paragraph; and (iii) the pharmacy must provide immediate access to equipment necessary to render the records easily readable. (7) Prescription drug order information. (A) All original prescriptions shall bear: (i)-(v) (No change.) (vi) directions for use; (vii) intended use for the drug unless the practitioner determines the furnishing of this information is not in the best interest of the patient; and (viii) date of issuance. (B) All original electronic prescription drug orders shall bear: (i)-(vi) (No change.) (vii) indications for use, unless the practitioner determines the furnishing of this information is not in the best interest of the patient; (viii) date of issuance; (ix) a statement which indicates that the prescription has been electronically transmitted, (e.g., Faxed to or electronically transmitted to:); (x) name, address, and electronic access number of the pharmacy to which the prescription was transmitted; (xi) telephone number of the prescribing practitioner; (xii) date the prescription drug order was electronically transmitted to the pharmacy, if different from the date of issuance of the prescription; and (xiii) if transmitted by a designated agent, the full name of the designated agent. (C) All original written prescriptions for dangerous drugs carried out or signed by an advanced practice nurse or physician assistant in accordance with the Medical Practice Act, sec.3.06(d), shall bear: (i) name and address of the patient; (ii) name, address, telephone number, and original signature of the practitioner; (iii) name, identification number, and original signature of the advanced practice nurse or physician assistant; (iv) address and telephone number of the clinic at which the prescription drug order was carried out or signed; (v) name, strength, and quantity of the dangerous drug; (vi) directions for use; (vii) indications for use, if appropriate; (viii) date of issuance; and (ix) number of refills authorized. (D) (No change.) (8) (No change.) (c)-(j) (No change. ) (k) Confidentiality. (1) A pharmacist shall provide adequate security of prescription drug orders, and patient medication records to prevent indiscriminate or unauthorized access to confidential health information. If prescription drug orders, requests for refill authorization, or other confidential health information are not transmitted directly between a pharmacy and a physician but are transmitted through a data communication device, confidential health information may not be accessed or maintained by the operator of the data communication device unless specifically authorized to obtain the confidential information by this subsection. (2) (No change.) sec.291.36. Class A Pharmacies Compounding Sterile Pharmaceuticals. (a) (No change.) (b) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise. (1) ACPE-The American Council on Pharmaceutical Education. (2) Act-The Texas Pharmacy Act, Texas Civil Statutes, Article 4542a-1, as amended. (3) Advanced practice nurse-A registered nurse approved by the Texas State Board of Nurse Examiners to practice as an advanced practice nurse on the basis of completion of an advanced education program. The term includes a nurse practitioner, a nurse midwife, a nurse anesthetist, and a clinical nurse specialist. (4) Airborne particulate cleanliness class-The level of cleanliness specified by the maximum allowable number of particles per cubic foot of air as specified in Federal Standard 209E, et seq. For example: (A) Class 100 is an atmospheric environment which contains less than 100 particles 0.5 microns in diameter per cubic foot of air; (B) Class 10,000 is an atmospheric environment which contains less than 10,000 particles 0.5 microns in diameter per cubic foot of air; and (C) Class 100,000 is an atmospheric environment which contains less than 100,000 particles 0.5 microns in diameter per cubic foot of air. (5) Ancillary supplies-Supplies necessary for the administration of compounded sterile pharmaceuticals. (6) Aseptic preparation-The technique involving procedures designed to preclude contamination of drugs, packaging, equipment, or supplies by microorganisms during processing. (7) Automated compounding or drug dispensing system -An automated device that compounds, measures, counts and/or packages a specified quantity of dosage units for a designated drug product. (8) Batch preparation compounding-Compounding of multiple sterile-product units, in a single discrete process, by the same individual(s), carried out during one limited time period. Batch preparation/compounding does not include the preparation of multiple sterile-product units pursuant to patient specific medication orders. (9) Biological Safety Cabinet-Containment unit suitable for the preparation of low to moderate risk agents where there is a need for protection of the product, personnel, and environment, according to National Sanitation Foundation (NSF) Standard 49. (10) Board-The Texas State Board of Pharmacy. (11) Carrying out or signing-A prescription drug order the completion of a prescription drug order presigned by the delegating physician, or the signing of a prescription by an advanced practice nurse or physician assistant after the person has been designated with the Texas State Board of Medical Examiners by the delegating physician as a person delegated to sign a prescription. The following information shall be provided on each prescription: (A) patient's name and address; (B) name, strength, and quantity of the drug to be dispensed; (C) directions for use; (D) the intended use of the drug, if appropriate; (E) the name, address, and telephone number of the physician; (F) the name, address, telephone number, and identification number of the advanced practice nurse or physician assistant completing the prescription drug order; (G) the date; and (H) the number of refills permitted. (12) Clean room-A room in which the concentration of airborne particles is controlled and there are one or more clean zones according to Federal Standard 209E, et seq. (13) Clean zone-A defined space in which the concentration of airborne particles is controlled to meet a specified airborne particulate cleanliness class. (14) Compounding-The preparation, mixing, assembling, packaging, or labeling of a drug or device: (A) as the result of a practitioner's prescription drug or medication order or initiative based on the practitioner-patient pharmacist relationship in the course of professional practice; (B) in anticipation of prescription drug or medication orders based on routine, regularly observed prescribing patterns; or (C) for the purpose of or as an incident to research, teaching, or chemical analysis and not for sale or dispensing. (15) Confidential record-Any health related record maintained by a pharmacy or pharmacist such as a patient medication record, prescription drug order, or medication drug order. (16) Controlled area-A controlled area is the area designated for preparing sterile pharmaceuticals. (17) Controlled substance-A drug, immediate precursor, or other substance listed in Schedules I-V or Penalty Groups 1-4 of the Texas Controlled Substances Act, as amended, or a drug, immediate precursor, or other substance included in Schedule I, II, III, IV, or V of the Federal Comprehensive Drug Abuse Prevention and Control Act of 1970, as amended (Public Law 91-513). (18) Critical areas-Any area in the controlled area where products or containers are exposed to the environment. (19) Cytotoxic-A pharmaceutical that has the capability of killing living cells. (20) Dangerous drug-Any drug or device that is not included in Penalty Groups 1-4 of the Controlled Substances Act and that is unsafe for self-medication or any drug or device that bears or is required to bear the legend: (A) "Caution: federal law prohibits dispensing without prescription;" or (B) "Caution: federal law restricts this drug to use by or on the order of a licensed veterinarian." (21) Data communication device-An electronic device that receives electronic information from one source and transmits or routes it to another (e.g., bridge, router, switch or gateway). (22) Deliver or delivery-The actual, constructive, or attempted transfer of a prescription drug or device or controlled substance from one person to another, whether or not for a consideration. (23) Designated agent- (A) a licensed nurse, physician assistant, pharmacist, or other individual designated by a practitioner, and for whom the practitioner assumes legal responsibility, who communicates prescription drug orders to a pharmacist; (B) a licensed nurse, physician assistant, or pharmacist employed in a health care facility to whom the practitioner communicates a prescription drug order; or (C) an advanced practice nurse or physician assistant authorized by a practitioner to carry out or sign a prescription drug order for dangerous drugs under Medical Practice Act, Article 4495b, sec.3.06(d)(5) or (6). (24) Device-An instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including any component part or accessory, that is required under federal or state law to be ordered or prescribed by a practitioner. (25) Dispense-Preparing, packaging, compounding, or labeling for delivery a prescription drug or device in the course of professional practice to an ultimate user or his agent by or pursuant to the lawful order of a practitioner. (26) Distribute-The delivery of a prescription drug or device other than by administering or dispensing. (27) Downtime-Period of time during which a data processing system is not operable. (28) Drug regimen review-An evaluation of prescription drug or medication orders and patient medication records for: (A) known allergies; (B) rational therapy-contraindications; (C) reasonable dose and route of administration; (D) reasonable directions for use; (E) duplication of therapy; (F) drug-drug interactions; (G) drug-food interactions; (H) drug-disease interactions; (I) adverse drug reactions; and (J) proper utilization, including overutilization or underutilization. (29) Electronic prescription drug order-A prescription drug order which is transmitted by an electronic device to the receiver (pharmacy). (30) Expiration date-The date (and time, when applicable) beyond which a product should not be used. (31) Full-time pharmacist-A pharmacist who works in a pharmacy from 30 to 40 hours per week or if the pharmacy is open less than 60 hours per week, one-half of the time the pharmacy is open. (32) Hard copy-A physical document that is readable without the use of a special device (i.e., cathode ray tube (CRT), microfiche reader, etc). (33) Medical Practice Act-The Texas Medical Practice Act, Texas Civil Statutes, Article 4495b, as amended. (34) New prescription drug order-A prescription drug order for a drug not previously self-administered by the patient. A new prescription includes a discharge prescription drug order but not a furlough prescription drug order. (35) Original prescription-The: (A) original written prescription drug orders; or (B) original verbal or electronic prescription drug orders reduced to writing either manually or electronically by the pharmacist. (36) Part-time pharmacist-A pharmacist who works less than full-time. (37) Patient counseling-Communication by the pharmacist of information to the patient or patient's agent, in order to improve therapy by ensuring proper use of drugs and devices. (38) Pharmacist-in-charge-The pharmacist designated on a pharmacy license as the pharmacist who has the authority or responsibility for a pharmacy's compliance with laws and rules pertaining to the practice of pharmacy. (39) Pharmaceutical care-The provision of drug therapy and other pharmaceutical services intended to assist in the cure or prevention of a disease, elimination or reduction of a patient's symptoms, or arresting or slowing of a disease process. (40) Physician assistant-A physician assistant recognized by the Texas State Board of Medical Examiners as having the specialized education and training required under the Medical Practice Act, sec.3.06(d), and issued an identification number by the Texas State Board of Medical Examiners. (41) Practitioner- (A) a physician, dentist, podiatrist, veterinarian, or other person licensed or registered to prescribe, distribute, administer, or dispense a prescription drug or device in the course of professional practice in this state; (B) a person licensed by another state in a health field in which, under Texas law, licensees in this state may legally prescribe dangerous drugs or a person practicing in another state and licensed by another state as a physician, dentist, veterinarian, or podiatrist, having a current federal Drug Enforcement Administration registration number, and who may legally prescribe Schedule II, III, IV, or V controlled substances in such other state; or (C) a person licensed in the Dominion of Canada or the United Mexican States in a health field in which, under the laws of this state, a licensee may legally prescribe dangerous drugs; (D) does not include a person licensed under the Texas Pharmacy Act. (42) Prepackaging-The act of repackaging and relabeling quantities of drug products from a manufacturer's original commercial container into a prescription container for dispensing by a pharmacist to the ultimate consumer. (43) Prescription drug- (A) a substance for which federal or state law requires a prescription before it may be legally dispensed to the public; (B) a drug or device that under federal law is required, prior to being dispensed or delivered, to be labeled with either of the following statements: (i) "Caution: federal law prohibits dispensing without prescription"; or (ii) "Caution: federal law restricts this drug to use by or on order of a licensed veterinarian"; or (C) a drug or device that is required by any applicable federal or state law or regulation to be dispensed on prescription only or is restricted to use by a practitioner only. (44) Prescription drug order- (A) an order from a practitioner or a practitioner's designated agent to a pharmacist for a drug or device to be dispensed; or (B) an order pursuant to the Medical Practice Act, sec.3.06(d)(5) or (6). (45) Process validation-Documented evidence providing a high degree of assurance that a specific process will consistently produce a product meeting its predetermined specifications and quality attributes. (46) Quality assurance-The set of activities used to assure that the process used in the preparation of sterile drug products lead to products that meet predetermined standards of quality. (47) Quality control-The set of testing activities used to determine that the ingredients, components (e.g., containers), and final sterile pharmaceuticals prepared meet predetermined requirements with respect to identity, purity, non- pyrogenicity, and sterility. (48) Sample-A prescription drug which is not intended to be sold and is intended to promote the sale of the drug. (49) Sterile pharmaceutical-A dosage form free from living micro-organisms. (50) Supportive personnel/Pharmacy technician-Those individuals utilized in pharmacies whose responsibility it shall be to provide technical services that do not require professional judgment concerned with the preparation and distribution of drugs under the direct supervision of and responsible to a pharmacist. (51) Texas Controlled Substances Act-The Texas Controlled Substances Act, Health and Safety Code, Chapter 481, as amended. (52) Unit-dose packaging-The ordered amount of drug in a dosage form ready for administration to a particular patient, by the prescribed route at the prescribed time, and properly labeled with name, strength, and expiration date of the drug. (53) Unusable drugs-Drugs or devices that are unusable for reasons such as they are adulterated, misbranded, expired, defective, or recalled. (54) Written protocol-A physicians order, standing medical order, standing delegation order, or other order or protocol as defined by rule of the Texas State Board of Medical Examiners under the Texas Medical Practice Act, (Texas Civil Statutes, Article 4495b). (c) Personnel. (1) (No change.) (2) Pharmacists. (A) General. (i)-(ii) (No change.) (iii) Pharmacists are solely responsible for the direct supervision of supportive personnel and for designating and delegating duties, other than those listed in subparagraph (B) of this paragraph, to supportive personnel. Each pharmacist: (I) shall verify the accuracy of all acts, tasks, or functions performed by supportive personnel; and (II) shall be responsible for any delegated act performed by supportive personnel under his or her supervision. (iv)-(v) (No change.) (B) Duties. Duties which may only be performed by a pharmacist are as follows: (i)-(iii) (No change.) (iv) interpreting patient medication records and performing drug regimen reviews; (v) affixing the label to the prescription container and performing the final check of the dispensed prescription before delivery to the patient to ensure that the prescription has been dispensed accurately as prescribed; (vi) (No change.) (vii) communicating to the patient or the patient's agent on his or her request, information concerning any prescription drugs dispensed to the patient by the pharmacy; (viii) assuring that a reasonable effort is made to obtain, record, and maintain patient medication records; and (ix) performing a specific act of drug therapy management for a patient delegated to a pharmacist by a written protocol from a physician licensed in this state in compliance with the Medical Practice Act (Texas Civil Statutes, Article 4495b). (3) Supportive personnel/pharmacy technicians. (A) Qualifications. (i) All Supportive personnel shall: (I) have a high school or equivalent degree, e.g., G.E.D., or be currently enrolled in a program which awards such a degree; and (II) complete a structured didactic and experiential training program, which provides instruction and experience in the areas listed in subparagraph (E) of this subsection. (ii) Supportive personnel employed in a pharmacy before March 1, 1996 are not required to comply with the education requirements listed in clause (i)(I) of this subparagraph, but must complete the training program specified in clause (i)(II) of this subparagraph by January 1, 1997 or cease performing the duties of a supportive person. (iii) All supportive personnel employed in a pharmacy on or after March 1, 1996 must meet the education requirements listed in clause (i)(I) of this subparagraph and complete the training program specified in clause (i)(II) of this subparagraph by January 1, 1997 or cease performing the duties of a supportive person. (iv) Effective January 1, 2001, all supportive personnel must have taken and passed the National Pharmacy Technician Certification Exam. (v) For the purpose of this section, supportive personnel are those persons who perform nonjudgmental technical duties associated with the dispensing of a prescription drug order. (B) Duties. (C) Ratio of pharmacists to supportive personnel. The ratio of pharmacists to supportive personnel shall be no greater than 1:2, provided that only one supportive person may be engaged in the compounding of sterile pharmaceuticals. (i) Supportive personnel may not perform any of the duties listed in paragraph 2(B) of this section (ii) A pharmacist may delegate to supportive personnel any nonjudgmental technical duty associated with the preparation and distributio 9of prescription drugs provided: (I) a pharmacist conducts in-process ad final checks; and (II) Supportive personnel are under the direct supervision of and responsible to a pharmacist. (D) Training. (i) Supportive personnel shall complete initial training as outlined by the pharmacist-in-charge in a training manual which includes training and experience as outlined in subparagraph (E) of this paragraph prior to the regular performance of their duties. Such training: (I) shall include training and experience as outlined in subparagraph (E) of this subsection; and (II) may not be transferred to another pharmacy unless: (-a-) the pharmacies are under common ownership and control and have a common training program; and (-b-) the pharmacist-in-charge of each pharmacy in which the supportive person works certifies that the supportive person is competent to perform the duties assigned in that pharmacy. (ii) (No change.) (iii) The pharmacist-in-charge shall document the completion of the training program and certify the competency of supportive personnel completing the training. A written record of initial and in-service training of supportive personnel shall be maintained and contain the following information: (I) name of the person receiving the training; (II) date(s) of the training; (III) general description of the topics covered; (IV) a statement or statements that certifies that the supportive person is competent to perform the duties assigned; (V) name of the person supervising the training; and (VI) signature of the supportive person and the pharmacist-in-charge or other pharmacist employed by the pharmacy and designated by the pharmacist-in-charge as responsible for training of supportive personnel. (E) Training program. Supportive personnel training shall be outlined in a training manual. Such training manual shall, at a minimum contain the following: (i) written procedures and guidelines for the use and supervision of supportive personnel. Such procedures and guidelines shall: (I) specify the manner in which the pharmacist responsible for the supervision of supportive personnel will supervise such personnel and verify the accuracy and completeness of all acts, task and functions performed by such personnel; and (II) specify duties which may and may not be performed by supportive personnel; and (ii) instruction in the following areas and any additional areas appropriate to the duties of supportive personnel in the pharmacy: (I) Orientation: (II) Job descriptions: (III) Communication techniques: (IV) Laws and rules: (V) Security and safety: (VI) Prescription drugs: (-a-) Basic pharmaceutical nomenclature; (-b-) Dosage forms; (VII) Prescription drug orders: (-a-) Prescribers; (-b-) Directions for use; (-c-) Commonly-used abbreviations and symbols; (-d-) Number of dosage units; (-e-) Strength and systems of measurement; (-f-) Route of administration; (-g-) Frequency of administration; (-h-) Interpreting directions for use. (VIII) Prescription drug order preparation: (-a-) Creating or updating patient medication records; (-b-) Entering prescription drug order information into the computer or typing the label in a manual system; (-c-) Selecting the correct stock bottle; (-d-) Accurately counting or pouring the appropriate quantity of drug product; (-e-) Selecting the proper container; (-f-) Preparing the finished product for inspection labeling and final check by pharmacists. (IX) Other functions: (X) Drug product prepackaging: (XI) Compounding of non-sterile pharmaceuticals: (XII) Written policy and guidelines for use of and supervision of supportive personnel. (4) Special education, training, and evaluation requirements for pharmacy personnel compounding or responsible for the direct supervision of pharmacy personnel compounding sterile pharmaceuticals. (A)-(B) (No change.) (C) Supportive personnel. In addition to the qualifications and training outlined in paragraph 3 of this subsection, all supportive personnel who compound sterile pharmaceuticals shall: (i) have a high school or equivalent education; and (ii) either: (I) complete a minimum of 40 hours of instruction and experience in the areas listed in subparagraph (A) of this paragraph. Such training may be obtained through the: (-a-) completion of a structured on-the-job didactic and experiential training program at this pharmacy (not transferable to another pharmacy) which provides 40 hours of instruction and experience in the areas listed in subparagraph (A) of this paragraph; or (-b-) completion of a course sponsored by an ACPE approved provider which provides 40 hours of instruction and experience in the areas listed in subparagraph (A) of this paragraph; or (II) complete a training program which is accredited by the American Society of Health-System Pharmacists (formerly the American Society of Hospital Pharmacists). (D) (No change.) (5) (No change.) (d) Operational standards. (1) Licensing requirements. (A) A Class A pharmacy compounding sterile pharmaceuticals shall register annually with the board on a pharmacy license application provided by the board, following the procedures specified in sec.291.1 of this title (relating to Pharmacy License Application). (B) A Class A pharmacy compounding sterile pharmaceuticals which changes ownership shall notify the board within ten days of the change of ownership and apply for a new and separate license as specified in sec.291.4 of this title (relating to Change of Ownership). (C) A Class A pharmacy compounding sterile pharmaceuticals which changes location and/or name shall notify the board within ten days of the change and file for an amended license as specified in sec.291.2 of this title (relating to Change of Location and/or Name). (D) A Class A pharmacy compounding sterile pharmaceuticals owned by a partnership or corporation which changes managing officers shall notify the board in writing of the names of the new managing officers within ten days of the change, following the procedures in sec.291.3 of this title (relating to Change of Managing Officers). (E) A Class A pharmacy compounding sterile pharmaceuticals shall notify the board in writing within ten days of closing, following the procedures in sec.291.5 of this title (relating to Closed Pharmacies). (F) A separate license is required for each principal place of business and only one pharmacy license may be issued to a specific location. (G) A fee as specified in sec.291.6 of this title (relating to Pharmacy License Fees) will be charged for the issuance and renewal of a license and the issuance of an amended license. (H) A Class A pharmacy compounding sterile pharmaceuticals, licensed under the provisions of the Act, sec.29(b)(1), which also operates another type of pharmacy which would otherwise be required to be licensed under the Act, sec.29(b)(2), concerning nuclear pharmacy (Class B), is not required to secure a license for such other type of pharmacy; provided, however, such licensee is required to comply with the provisions of sec.291.51 of this title (relating to Definitions), sec.291.52 of this title (relating to Personnel), sec.291.53 of this title (relating to Operational Standards), and sec.291.54 of this title (relating to Records), contained in Nuclear Pharmacy (Class B), to the extent such rules are applicable to the operation of the pharmacy. (I) A Class A pharmacy engaged in nonsterile compounding of drug products shall comply with the provisions of sec. sec.291.31-291.34 of this title (relating to Definitions, Personnel, Operational Standards, and Records for Class A (Community) Pharmacies) to the extent such rules are applicable to nonsterile compounding of drug products. (2) Environment. (A) General requirements. (i)-(vii) (No change.) (viii) Animals, including birds, and reptiles, shall not be kept within the pharmacy and in immediately adjacent areas under the control of the pharmacy. This provision does not apply to fish in aquariums, guide dogs accompanying disabled persons, or animals for sale to the general public in a separate area that is inspected by local health jurisdictions. (B)-(C) (No change.) (3) Prescription dispensing and delivery. (A)-(B) (No change.) (C) Labeling. (i) At the time of delivery of the drug, the dispensing container of a sterile pharmaceutical shall bear a label with at least the following information: (I)-(XII) (No change.) (XIII) the name of the advanced practice nurse or physician assistant, if the prescription is carried out by an advanced practice nurse or physician assistant in compliance with the Medical Practice Act, sec.3.06(d). (ii) (No change.) (4) Pharmaceutical care services. (A) (No change.) (B) Other pharmaceutical care services which may be provided by pharmacists include, but are not limited to, the following: (i) managing drug therapy as delegated by a practitioner as allowed under the provisions of the Medical Practice Act, sec.3.061 or sec.3. 06(d); (ii) managing patient compliance programs; (iii) providing preventative health care services; and (iv) providing case management of patients who are being treated with high- risk or high-cost drugs, or who are considered "high risk" due to their age, medical condition, family history, or related concern. (5) (No change.) (6) Library. A reference library shall be maintained which includes the following in hard-copy or electronic format: (A) (No change.) (B) at least one current or updated reference from each of the following categories: (i)-(ii) (No change.) (iii) general information: (I) Facts and Comparisons with current supplements; (II) United States Pharmacopeia Dispensing Information, Volume I (Drug Information for the Healthcare Provider); (III) AHFS Drug Information with current supplements; (IV) Remington's Pharmaceutical Sciences; or (V) Micromedex; (iv) (No change.) (C)-(E) (No change.) (7)-(9) (No change.) (e) Records. (1) (No change.) (2) Prescriptions. (A) (No change.) (B) Written prescription drug orders. (i)-(v) (No change.) (vi) Prescription drug orders carried out or signed by an advanced practice nurse or physician assistant. (I) A pharmacist may dispense a prescription drug order for a dangerous drug which is carried out or signed by an advanced practice nurse or physician assistant provided: (-a-) the prescription is for a dangerous drug and not for a controlled substance; and (-b-) the advanced practice nurse or physician assistant is practicing in accordance with the Medical Practice Act, sec.3.06(d). (II) Each practitioner shall designate in writing the name of each advanced practice nurse or physician assistant authorized to carry out or sign a prescription drug order pursuant to the Medical Practice Act, sec.3.06(d). A list of the advanced practice nurses or physician assistants designated by the practitioner must be maintained in the practitioner's usual place of business. On request by a pharmacist, a practitioner shall furnish the pharmacist with a copy of the written authorization for a specific advanced practice nurse or physician assistant. (vii) (No change.) (C) (No change.) (D) Electronic prescription drug orders. For the purpose of this subparagraph, electronic prescription drug orders shall be considered the same as verbal prescription drug orders. (i) An electronic prescription drug order may be transmitted by a practitioner or a practitioner's designated agent: (I) directly to a pharmacy; or (II) through the use of a data communication device provided: (-a-) the prescription information is not altered during transmission; and (-b-) confidential patient information is not accessed or maintained by the operator of the data communication device unless the operator is authorized to receive the confidential information as specified in subsection (k) of this section. (ii) A practitioner shall designate in writing the name of each agent authorized by the practitioner to electronically transmit prescriptions for the practitioner. The practitioner shall maintain at the practitioner's usual place of business a list of the designated agents. The practitioner shall provide a pharmacist with a copy of the practitioner's written authorization for a specific agent on the pharmacist's request. (iii) A pharmacist may not dispense an electronic prescription drug order for a: (I) Schedule II controlled substance; (II) Schedule III, IV, or V controlled substance issued by a practitioner licensed in another state unless the practitioner is also registered under the Texas Controlled Substances Act; or (III) dangerous drug or controlled substance issued by a practitioner licensed in the Dominion of Canada or the United Mexican States unless the practitioner is also licensed in Texas. (iv) The practitioner or practitioner's agent shall note any substitution instructions on the electronic prescription drug order. Such electronic prescription drug order may follow the two-line format indicated in subparagraph (B)(ii) of this paragraph or any other format that clearly indicated the substitution instructions. (E) Authorization for generic substitution. (i) A pharmacist may dispense a generically equivalent drug product if: (I)-(III) (No change.) (IV) the practitioner or practitioner's agent does not clearly indicate that the verbal or electronic prescription drug order shall be dispensed as ordered. (ii)-(iv) (No change.) (F) Substitution of dosage form. (i) A pharmacist may dispense a dosage form of a drug product different from that prescribed, such as a tablet instead of a capsule or liquid instead of tablets, provided: (I) the patient consents to the dosage form substitution; (II) the pharmacist notifies the practitioner of the dosage form substitution; and (III) the dosage form so dispensed: (-a-) contains the identical amount of the active ingredients as the dosage prescribed for the patient; (-b-) is not an enteric-coated or time release product; and (-c-) does not alter desired clinical outcomes. (ii) Substitution of dosage form may not include the substitution of a product that has been compounded by the pharmacist unless the pharmacist contacts the practitioner prior to dispensing and obtains permission to dispense the compounded product. (G) Original prescription drug order records. (i) Original prescriptions shall be maintained by the pharmacy in numerical order and remain legible for a period of two years from the date of filling or the date of the last refill dispensed. (ii)-(iv) (No change.) (H) Prescription drug order information. (i) All original prescriptions shall bear: (I)-(V) (No change.) (VI) directions for use; (VII) intended use for the drug unless the practitioner determines the furnishing of this information is not in the best interest of the patient; (VIII) date of issuance; and (IX) if telephoned to the pharmacist by a designated agent, the full name of the designated agent. (ii) All original prescriptions for dangerous drugs carried out by an advanced practice nurse or physician assistant in accordance with the Medical Practice Act, sec.3.06(d), shall bear: (I) name and address of the patient; (II) name, address, telephone number, and original signature of the practitioner; (III) name, address telephone number, identification number, and original signature of the advanced practice nurse or physician assistant; (IV) name, strength, and quantity of the dangerous drug; (V) directions for use; (VI) the intended use of the drug, if appropriate; (VII) date of issuance; and (VIII) number of refills authorized. (iii) All original electronic prescription drug orders shall bear: (I)-(V) (No change.) (VI) intended use for the drug unless the practitioner determines the furnishing of this information is not in the best interest of the patient; (VII) date of issuance; (VIII) a statement which indicates that the prescription has been electronically transmitted, (e.g., Faxed to or electronically transmitted to:); (IX) name, address, and electronic access number of the pharmacy to which the prescription was transmitted; (X) telephone number of the prescribing practitioner; (XI) date the prescription drug order was electronically transmitted to the pharmacy, if different from the date of issuance of the prescription; and (XII) if transmitted by a designated agent, the full name of the designated agent. (iv) (No change.) (I) (No change.) (3)-(6) (No change.) (7) Patient Medication Record (PMR). A PMR shall be maintained for each patient of the pharmacy. The PMR shall contain at a minimum the following. (A) Patient information: (i) -(vii) (No change.) (B) Prescription drug order information: (i)-(vi) (No change.) (C) Nothing in this paragraph shall be construed as requiring a pharmacist to obtain, record, and maintain patient information other than prescription drug order information when a patient or patient's agent refuses to provide the necessary information for such patient medication records. (8)-(10) (No change.) (11) Confidentiality. (A) A pharmacist shall provide adequate security of prescription drug order and patient medication records to prevent indiscriminate or unauthorized access to confidential health information. If prescription drug orders, requests for refill authorization, or other confidential health information are not transmitted directly between a pharmacy and a physician but are transmitted through a data communication device, confidential health information may not be accessed or maintained by the operator of the data communication device unless specifically authorized to obtain the confidential information by this subsection. (B) (No change.) (f) (No change.) This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on February 29, 1996. TRD-9602867 Fred S. Brinkley, Jr., R.Ph., M.B.A. Executive Director/Secretary Texas State Board of Pharmacy Effective date: March 21, 1996 Proposal publication date: October 6, 1995 For further information, please call: (512) 305-8027 Institutional Pharmacy (Class C) 22 TAC sec.sec.291.72-291.74 The Texas State Board of Pharmacy adopts amendments to sec.sec.291.72-291.74, concerning Definitions, Personnel, and Operational Standards, with changes to the proposed text as published in the October 6, 1995, issue of the Texas Register (20 TexReg 8164). The amendments specify the minimum qualifications and training requirements for supportive personnel in Class C Pharmacies and implement most of the recommendations of the Board appointed Task Force on Pharmacy Technicians. The amendments also remove references to the Class F Pharmacy license, which was eliminated by House Bill 1408 passed by the 74th Texas Legislature. A total of 32 comments were received regarding the adoption of the amendments. Eighteen of the comments were oral comments received at a public hearing on the rules held on November 14, 1995 and 14 persons submitted written comments regarding the rules. The changes to the proposed text and reasons for these changes are as follows: Section 291.72-Definitions Comment: Representatives from the Coalition for Nurses in Advanced Practice, Texas Academy of Physician Assistants, Texas Medical Association and Texas Nurses Association suggested that the definition for "prescription drug order" be updated to include changes made by Senate Bill 673 passed during the 74th Legislative Session. Response: The Board agrees with this comment and has updated the definition. Section 291.73(d)(1) Personnel-Pharmacists-General Comment: Representatives of the Texas Federation of Drug Stores, Texas Society of Health-System Pharmacists, Texas Pharmacy Association, and three individuals questioned the addition of the phrase: "No employer or supervisor may interfere with or impair the proper exercise of a pharmacist professional judgement in designating and delegating duties to supportive personnel." Response: The Board agrees that, rather than clarifying, the addition of this phrase appears to be causing confusion. Therefore, the proposed change is not adopted and paragraph (1) remains as it was prior to the proposed change. Section 291.73(e)(1)-Personnel-Supportive personnel/pharmacy technicians- Qualifications Comment: Representatives from the Texas Federation of Drug Stores, Texas Pharmacy Association and eleven individuals commented against requiring that pharmacy technicians be high school graduates. One individual commented in favor of this requirement. Response: The Board agrees that persons enrolled in high school should be allowed to work as pharmacy technicians. The language has been modified to require that a pharmacy technician has to be currently enrolled in or have a high school degree. Comment: Representatives from the Texas Federation of Drug Stores, Texas Pharmacy Association and five individuals commented against the requirement that the training program be "site-specific" and suggested that the training should be transferable to another pharmacy if the pharmacies were under common management. Response: The Board agrees with these comments and has modified the language to delete the words "site-specific" and "at this pharmacy." In addition, the Board has added language to specify that a person receiving the training may transfer this training to another pharmacy if the pharmacies are under common ownership and have a common training program, and provided the pharmacist-in-charge at each pharmacy certifies that the technician is competent. Comment: A representative from the Texas Federation of Drug Stores expressed concern with the date August 1, 1995 as the date that technicians employed after that time must have a high school degree and suggested a "window" after the effective date of the rules-perhaps June 1, 1996. Response: The Board agrees with this comment and has changed the date to March 1, 1996. Comment: Representatives from the Texas Federation of Drug Stores, Texas Pharmacy Association, Texas Society of Health-System Pharmacists and two individuals either were against requiring all technicians to be certified by January 1, 2001 or questioned the requirement. Two individuals were in favor of this requirement. Response: The Board disagrees with the persons commenting against this requirement and the language remains as proposed. However, the Board agrees to monitor the issue for other possible alternatives. Section 291.73(e)(4)-Personnel-Supportive personnel/pharmacy technicians- Training In response to previous comments and at staff's recommendation, the Board has added to this section: (1) clarification that the training may be transferred to another pharmacy if the pharmacies are under common ownership and control and have a common training program; (2) a requirement that the pharmacist-in-charge must certify the competency of supportive personnel in writing. Section 291.73(e)(5)-Personnel-Supportive personnel/pharmacy technicians- Training Program Comment: Representatives of the Texas Federation of Drug Stores, Texas Pharmacy Association, and one individual suggested that the training outline in the rules were too detailed and too specific. Response: The Board agrees with these comments and has eliminated the detail and kept only the major headings in the outline of topics to be covered. In addition, the Board has added a requirement that the training manual include written procedures and guidelines for the use and supervision of supportive personnel. Section 291.73(f)(3)-Special education, training-Supportive personnel This section is returned to the language prior to proposal of the rules because of the change made earlier in the educational requirements for a technician. Section 291.74(g)(2)(A)-Pharmaceutical Care Services -Other The change made in this subparagraph is the addition of a reference to the Medical Practices Act, sec.3.061 as added by the passage of Senate Bill 659 by the 74th Legislative Session. The amendments are adopted under the Texas Pharmacy Act (Texas Civil Statutes, Article 4542a-1), sec.4, which specifies that the purpose of the Act is to protect the public through the effective control and regulation of the practice of pharmacy; sec.16(a), which gives the Board the authority to adopt rules for the proper administration and enforcement of the Act; sec.17(b)(3), which gives the Board the authority to specify minimum standards for drug storage, maintenance of prescription drug records and procedures for the delivery, dispensing in a suitable container appropriately labeled, providing of prescription drugs or devices, monitoring of drug therapy, and counseling of patients on proper use of prescription drugs and devices within the practice of pharmacy; sec.17(o), which gives the Board the authority to establish rules for the use of supportive personnel and the duties of those personnel in pharmacies licensed by the Board; House Bill 1408 as passed by the 74th Legislature which eliminates the Class F Pharmacy license; and Senate Bill 659 as passed by the 74th Legislature which allows a physician to delegate medication therapy management to a pharmacist. The statutes affected by these amendments: Texas Civil Statutes, Article 4542a- 1. sec.291.72. Definitions. The following words and terms, when used in these sections, shall have the following meanings, unless the context clearly indicates otherwise. Prescription drug order- (A) a written order from a practitioner or a verbal order from a practitioner or his authorized agent to a pharmacist for a drug or device to be dispensed; or (B) a written order or a verbal order pursuant to the Medical Practice Act, sec.3. 06(d)(5) or (6). Written protocol -A physician's order, standing medical order, standing delegation order, or other order or protocol as defined by rule of the Texas State Board of Medical Examiners under the Texas Medical Practice Act, (Texas Civil Statutes, Article 4495b). sec.291.73. Personnel. (a)-(c) (No change.) (d) Pharmacists. (1) General. (A)-(B) (No change.) (C) All pharmacists shall be responsible for any delegated act performed by supportive personnel under his or her supervision. (D) (No change.) (2) Duties. Duties of the pharmacist-in-charge and all other pharmacists shall include, but need not be limited to the following: (A) -(C) (No change.) (D) performing a specific act of drug therapy management for a patient delegated to a pharmacist by a written protocol from a physician licensed in this state in compliance with the Medical Practice Act (Texas Civil Statutes, Article 4495b). (E) accepting the responsibility for: (i) distributing drugs and devices pursuant to medication orders; (ii) compounding and labeling of drugs and devices; (iii) proper and safe storage of drugs and devices; and (iv) maintaining proper records for drugs and devices. (e) Supportive personnel/Pharmacy technicians. (1) Qualifications. (A) All supportive personnel shall: (i) have a high school or equivalent degree, e.g., G.E.D., or be currently enrolled in a program which awards such a degree; and (ii) complete a structured didactic and experiential training program, which provides instruction and experience in the areas listed in paragraph (4) of this subsection. (B) Supportive personnel employed in a pharmacy before March 1, 1996 are not required to comply with the education requirements listed in subparagraph (A)(i) of this paragraph but must complete the training program specified in subparagraph (A)(ii) of this paragraph by January 1, 1997 or cease performing the duties of a supportive person. (C) All supportive personnel employed in a pharmacy on or after March 1, 1996 must meet the education requirements listed in subparagraph (A)(i) of this paragraph and complete the training program specified in subparagraph (A)(ii) of this paragraph by January 1, 1997 or cease performing the duties of a supportive person. (D) Effective January 1, 2001, all supportive personnel must have taken and passed the National Pharmacy Technician Certification Exam. (E) For the purpose of this section, supportive personnel are those persons who perform nonjudgmental technical duties associated with the distribution of a medication drug order. (2)-(3) (No change.) (4) Training. (A) Supportive personnel shall complete initial training as outlined by the pharmacist-in-charge in a training manual, prior to the regular performance of their duties. Such training: (i) shall include training and experience as outlined in paragraph (5) of this subsection; and (ii) may not be transferred to another pharmacy unless: (I) the pharmacies are under common ownership and control and have a common training program; and (II) the pharmacist-in-charge of each pharmacy in which the supportive person works certifies that the supportive person is competent to perform the duties assigned in that pharmacy. (B) The pharmacist-in-charge shall assure the continuing competency of supportive personnel through in-service education and training to supplement initial training. (C) The pharmacist-in-charge shall document the completion of the training program and certify the competency of supportive personnel completing the training. A written record of initial and in-service training of supportive personnel shall be maintained and contain the following information: (i) name of the person receiving the training; (ii) date(s) of the training; (iii) general description of the topics covered; (iv) a statement or statements that certifies that the supportive person is competent to perform the duties assigned; (v) name of the person supervising the training; and (vi) signature of the supportive person and the pharmacist-in-charge or other pharmacist employed by the pharmacy and designated by the pharmacist-in-charge as responsible for training of supportive personnel. (5) Training program. Supportive personnel training shall be outlined in a training manual. Such training manual shall, at a minimum contain the following: (A) written procedures and guidelines for the use and supervision of supportive personnel. Such procedures and guidelines shall: (i) specify the manner in which the pharmacist responsible for the supervision of supportive personnel will supervise such personnel and verify the accuracy and completeness of all acts, tasks, and functions performed by such personnel; and (ii) specify duties which may and may not be performed by supportive personnel; and (B) instruction in the following areas and any additional areas appropriate to the duties of supportive personnel in the pharmacy; (i) Orientation: (ii) Job descriptions: (iii) Communication techniques: (iv) Laws and rules: (v) Security and safety: (vi) Prescription drugs: (I) Basic pharmaceutical nomenclature: (II) Dosage forms: (vii) Medication drug orders: (I) Prescribers; (II) Directions for use; (III) Commonly-used abbreviations and symbols; (IV) Number of dosage units; (V) Strength and systems of measurement; (VI) Route of administration; (VII) Frequency of administration; (VIII) Interpreting directions for use. (viii) Medication drug order preparation: (I) Creating or updating patient medication records; (II) Entering medication drug order information into the computer or typing the label in a manual system; (III) Selecting the correct stock bottle; (IV) Accurately counting or pouring the appropriate quantity of drug product; (V) Selecting the proper container; (VI) Affixing the prescription label; (VII) Affixing auxiliary labels, if indicated; (VIII) Preparing the finished product for inspection and final check by pharmacists. (ix) Other functions; (x) Drug product Prepackaging; (xi) Compounding of Non-sterile pharmaceuticals; (xii) Written policy and guidelines for use of and supervision of supportive personnel. (f) Special education, training, and evaluation requirements for pharmacy personnel compounding or responsible for the direct supervision of pharmacy personnel compounding sterile pharmaceuticals. (1)-(2) (No change.) (3) Supportive personnel. In addition to the qualifications and training outlined in subsection (e) of this section, all supportive personnel who compound sterile pharmaceuticals shall: (A) have a high school or equivalent education; and (B) either: (i) complete a minimum of 40 hours of instruction and experience in the areas listed in paragraph (1) of this subsection. Such training may be obtained through the: (I) completion of a structured on-the-job didactic and experiential training program at this pharmacy (not transferable to another pharmacy) which provides 40 hours of instruction and experience in the areas listed in paragraph (1) of this subsection; or (II) completion of a course sponsored by an ACPE approved provider which provides 40 hours of instruction and experience in the areas listed in paragraph (1) of this subsection; or (ii) complete a training program which is accredited by the American Society of Health-System Pharmacists (formerly American Society of Hospital Pharmacists). (C) (No change.) (4) (No change.) (g) (No change.) sec.291.74. Operational Standards. (a) Licensing requirements. (1)-(10) (No change.) (b)-(f) (No change.) (g) Pharmaceutical care services. (1) (No change.) (2) Other pharmaceutical care services which may be provided by pharmacists in the facility include, but are not limited to, the following: (A) managing drug therapy as delegated by a practitioner as allowed under the provisions of the Medical Practice Act, sec.3.061 or sec.3.06(d); (B) managing patient compliance programs; (C) providing preventative health care services; and (D) providing case management of patients who are being treated with high-risk or high-cost drugs, or who are considered "high risk" due to their age, medical condition, family history, or related concern. (h)-(i) (No change.) This agency hereby certifies that the adoption have been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on February 29, 1996. TRD-9602868 Fred S. Brinkley, Jr., R.Ph., M.B.A. Executive Director/Secretary Texas State Board of Pharmacy Effective date: March 21, 1996 Proposal publication date: October 6, 1995 For further information, please call: (512) 305-8027 Chapter 309. Generic Substitution 22 TAC sec.309.2, sec.309.3 The Texas State Board of Pharmacy adopts amendments to sec.309.2 and sec.309.3, concerning Definitions and Prescription Drug Orders, with changes to the proposed text as published in the October 3, 1995, issue of the Texas Register (20 TexReg 8059). The amendments establish procedures for the electronic transmission of prescriptions from practitioner to pharmacy and specify procedures for the substitution of dosage forms by pharmacists. A total of 32 comments were received regarding the adoption of the amendments. Eighteen of the comments were oral comments received at a public hearing on the proposed rules held on November 14, 1995 and 14 persons submitted written comments regarding the rules. The change to sec.309.2 is in the definition of "electronic prescription drug order." This change is as a result of comments from representatives from the Texas Federation of Drug Stores, Texas Pharmacy Association, and one individual which suggested that the words "over telephone lines" be deleted from the definition. The Board agrees with this comment and changes have been made in this definition. The change to sec.309.3 is in paragraph (2)(B) regarding substitution of dosage forms. This change to make this language consistent with language adopted in the Class A Pharmacy rules. The amendments are adopted under the Texas Pharmacy Act (Texas Civil Statutes, Article 4542-1), sec.17(b)(4), which specifies that the Board has the responsibility for the adoption of rules regulating a prescription drug or medication order transmitted by electronic means; sec.40(d), which allows a pharmacist to dispense a dosage form of a drug product different from that prescribed; and sec.16(a), which specifies that the Board has the authority to adopt rules for the proper administration and enforcement of the Act. The statute affected by these amendments: Texas Civil Statutes, Article 4542a- 1. sec.309.2. Definitions. The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise. Any term not defined in this section shall have the definition set out in the Act, sec.5 and sec.40. Data communication device-An electronic device that receives electronic information from one source and transmits or routes it to another (e.g., bridge, router, switch, or gateway). Electronic prescription drug order-A prescription drug order which is transmitted by an electronic device to the receiver (pharmacy). Original prescription -The: (A) original written prescription drug orders; or (B) original verbal or electronic prescription drug orders reduced to writing either manually or electronically by the pharmacist. sec.309.3. Prescription Drug Orders. (a) Written prescription drug orders. (1) (No change.) (2) Authorization for substitution. (A) Generic substitution. (i) A pharmacist may dispense a generically equivalent drug product if: (I)-(III) (No change.) (IV) the practitioner or practitioner's agent does not clearly indicate that the verbal or electronic prescription drug order shall be dispensed as ordered. (ii)-(iv) (No change.) (B) Substitution of dosage form. (i) A pharmacist may dispense a dosage form of a drug product different from that prescribed, such as a tablet instead of a capsule or liquid instead of tablets, provided; (I) the patient consents to the dosage form substitution; (II) the pharmacist notifies the practitioner of the dosage form substitution; and (III) the dosage form so dispensed: (-a-) contains the identical amount of the active ingredients as the dosage prescribed for the patient; (-b-) is not an enteric-coated or time release product; (-c-) does not alter desired clinical outcomes; (ii) Substitution of dosage form may not include the substitution of a product that has been compounded by the pharmacist unless the pharmacist contacts the practitioner prior to dispensing and obtains permission to dispense the compounded product. (b) (No change.) (c) Electronic prescription drug orders. (1) The practitioner or practitioner's agent shall note any substitution instructions on the electronic prescription drug order. Such electronic prescription drug order may follow the two-line format indicated in subsection (a)(1)(A) of this subsection, or any other format that clearly indicates the substitution instructions. (2) If the practitioner or practitioner's agent does not clearly indicate on the electronic prescription drug order that the prescription shall be dispensed as ordered, the pharmacist may substitute a generically equivalent drug product. (d) (No change.) This agency hereby certifies that the adoption have been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on February 29, 1996. TRD-9602869 Fred S. Brinkley, Jr., R.Ph., M.B.A. Executive Director/Secretary Texas State Board of Pharmacy Effective date: March 21, 1996 Proposal publication date: October 3, 1995 For further information, please call: (512) 305-8027 TITLE 25. HEALTH SERVICES Part I. Texas Department of Health Chapter 33. Early and Periodic Screening, Diagnosis and Treatment Subchapter E. Medical Phase 25 TAC sec.33.140 On behalf of the State Medicaid Director, the Texas Department of Health (department) submits an adopted amendment to sec.33.140, concerning Early and Periodic Screening, Diagnosis, and Treatment-Comprehensive Care Program (EPSDT- CCP) providers, with changes to the proposed text as published in the October 6, 1995, issue of the Texas Register (20 TexReg 8167). The amendment clarifies that comprehensive outpatient rehabilitation facilities (CORFs) and outpatient rehabilitation facilities (ORFs) are EPSDT-CCP providers, and shall be reimbursed according to Medicare methodology. The amendment as proposed also concerned reimbursement for durable medical equipment (DME) by direct vendor payments. As a result of numerous comments, the department recommends to the State Medicaid Director that the proposed amendment to sec.33.140(5)(A)(iv) not be adopted as proposed, and will gather additional information to clarify whether an alternative methodology that will distinguish rehabilitation equipment dealers from other types of DME providers is also needed. All the following comments concerned the proposed amendment to sec.33.140(5) (A)(iv). COMMENT: Several commenters stated that rehabilitation equipment dealers have different characteristics and different cost structures compared to durable medical equipment dealers who do not sell and service customized wheelchairs. RESPONSE: The department agrees that product and service differentiation may be an important consideration in developing a reimbursement methodology. The department is not adopting the proposed amendment at this time in order to study this issue further. COMMENT: Several commenters stated that the proposed amendment would always result in utilization of the cost-plus approach, and that the add-on was inadequate. RESPONSE: The adequacy of the percentage add-on cannot be evaluated because it is not defined in the rule. COMMENT: Several commenters stated that the rule did not adequately define costs. RESPONSE: The department agrees that the individual components which comprise the definition of costs are not explained completely. The department is not adopting the proposed amendment in order to develop an appropriate definition. COMMENT: Several commenters stated that the proposed amendment would entail extensive cost accounting in order to document how reimbursement was determined. RESPONSE: The department believes that with an appropriate definition of costs, this will not be an issue. The department is not adopting the proposed amendment pending development of an appropriate definition. COMMENT: Several commenters stated that employing a cost-plus methodology would result in higher cost equipment being provided. RESPONSE: The department believes that other policies that have been developed would effectively deter the provision of the highest price equipment. Not only is a vendor required to show medical necessity for a particular piece of equipment, but National Heritage Insurance Company also may request documentation to support provision of a relatively expensive piece of equipment when a less expensive substitute is available. No changes were made as a result of this comment. COMMENT: A commenter asked when the requirement for prior authorization would become effective. The commenter expressed concern that equipment which has already been authorized under the existing methodology could be reimbursed under the proposed amendment, resulting in a reduced level of payment. RESPONSE: Prior authorization is intended to address whether the equipment is medically necessary for the client's condition. The department does not intend to use prior authorization for reimbursement purposes. No changes were made as a result of this comment. COMMENT: Several commenters stated that access to quality rehabilitation services would likely be harmed if the proposed amendment is adopted. RESPONSE: The department is committed to ensure that adequate access to these services is maintained. No changes were made as a result of this comment. COMMENT: Several commenters stated that this amendment would have a negative impact on business and the labor force. RESPONSE: The impact of this change would, in large part, depend upon the percentage of a provider's business derived from Medicaid program as compared to that from other payment sources. Since the department's cost information is primarily based on Medicaid, no changes were made as a result of this comment. COMMENT: A commenter recommended that the department should also reimburse providers for mileage and other travel expenditures. RESPONSE: The department is considering this issue, but no changes were made at this time. COMMENT: A commenter recommended that the department reimburse providers for services provided by seating specialists such as initial evaluations, fitting, and follow-up inspections. RESPONSE: The department believes that providers of these services are adequately compensated under the current global pricing methodology. Reimbursement for services provided by seating specialists may be an option for future consideration if the department determines that the cost-plus methodology should be used predominantly. No changes were made as a result of this comment. COMMENT: One commenter recommended that all DME providers should be reimbursed according to the lesser of either the manufacturer's suggested retail price minus 25%, or cost plus 35%. RESPONSE: Although the suggestion may have merit, no supporting documentation was provided showing how the two alternative percentages were determined. No changes were made as a result of this comment. Comments were received from several rehabilitation equipment dealers and from representatives of the Texas Association of Medical Equipment Dealers. Although some commenters had questions and offered suggestions, most were against the proposed amendment to sec.33.140(5)(A)(iv). No comments were received concerning the proposed sec.33.140(15). The amendment is adopted under Human Resources Code, sec.32.021, and Texas Civil Statutes, Article 4413 (502), sec.16, which provides the Health and Human Services Commission with the authority to adopt rules to administer the state's medical assistance program and are submitted to the Texas Department of Health under its agreement with the Health and Human Services Commission to operate the Early and Periodic Screening, Diagnosis and Treatment-Comprehensive Care Program (EPSDT-CCP) and as authorized under Chapter 15, sec.1.07, Acts of the 72nd Legislature, First Called Session (1991). sec.33.140. Early and Periodic Screening, Diagnosis, Treatment-Comprehensive Care Program Providers (EPSDT-CCP). The following are approved EPSDT-CCP provider types and the approved Texas Medical Assistance (Medicaid) Program reimbursement methodology for each provider type. (1)-(4) (No change.) (5) Reimbursement for durable medical equipment. (A) Direct vendor payments. The department or its designee makes direct vendor payments to providers of durable medical equipment participating in the Medicaid program. Participating providers are reimbursed within the limits of the maximum allowable fee schedule established by the department. The maximum allowable fee schedule for durable medical equipment is based on the lesser of the following: (i)-(iii) (No change.) (iv) if no discount is provided, the incurred cost to the dealer plus a percentage to be determined by the department. (B)-(C) (No change.) (6)-(14) (No change.) (15) Comprehensive outpatient rehabilitation facility/outpatient rehabilitation facility. A comprehensive outpatient rehabilitation facility or outpatient rehabilitation facility must be enrolled and participating in Medicare. The department or its designee will reimburse comprehensive outpatient rehabilitation facilities and outpatient rehabilitation facilities according to Medicare reimbursement methodology. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 27, 1996. TRD-9603161 Susan K. Steeg General Counsel Texas Department of Health Effective date: March 27, 1996 Proposal publication date: October 6, 1995 For further information, please call: (512) 458-7236 28. Insurance Part I. Texas Department of Insurance Chapter 5. Property and Casualty Insurance Subchapter B. Insurance Code, Chapter 5, Subchapter B Rules to Implement the Omnibus Health Care Rescue Act's Reduction In Certain Professional Liability Insurance Premiums 28 TAC sec.sec.5.1301-5.1307 The Texas Department of Insurance adopts amendments to sec.sec.5.1301-5.1307, concerning implementation of the Omnibus Health Rescue Act's reduction in certain professional liability insurance premiums, without changes to the proposed text as published in the January 16, 1996, issue of the Texas Register (21 TexReg 422). The amendments are necessary to conform these sections to the Insurance Code, Article 5.15-4 as amended by House Bill 1362, 74th Legislature, 1995. These amendments ensure that the definition of persons and entities entitled to a reduction in professional liability premium will match the revised requirements now in Article 5.15-4, Insurance Code and sec.sec.110.001, 110.002, 110.003, and 110.005, Civil Practice and Remedies Code. The amendments narrow the scope of those persons and entities entitled to a reduction in premium by the deletion of all aspects of the definition of "charity care" except for approved family practice residency training programs, the elimination of Medicaid managed care programs from the definitions of "health care professional" and "eligible health care liability claim", the elimination of the definition of "health center" as defined by 42 U.S.C. sec.1396d and the elimination of the term "health center" from the definitions of a "health care liability claim" and "patient encounter". The term "health center" was eliminated wherever it appeared in sec.sec.5.1301- 5.1307. The term "health care professionals" as defined in sec.110.001(3)(D) of the Civil Practice and Remedies Code was eliminated from subsections (c) and (d) of sec.5.1304. The amendments reduce the number of physicians who are eligible for a reduction in premium by narrowing the definition of "charity care" and eliminating health centers, Medicaid managed care programs and certain health care professionals from eligibility under the program. No comments were received regarding adoption of the amendments. The amendments are adopted under the Insurance Code, Articles 5.15-4 and 1. 03A and the Government Code sec.sec.2001.004 et seq Article 5.15-4 authorizes the Texas Department of Insurance to adopt necessary rules, forms, endorsements and procedures to carry out the purposes of this article. Article 1.03A authorizes the commissioner to adopt rules and regulations for the conduct and execution of the duties and functions of the department as authorized by statute. The Government Code, sec.sec.2001.004 et seq (Administrative Procedure Act) authorizes and requires each state agency to adopt rules of practice setting forth the nature and requirement of available procedures and to prescribe the procedures for adoption of rules by a state agency. This agency hereby certifies that the adoption have been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 6, 1996. TRD-9603162 Alicia M. Fechtel General Counsel and Chief Clerk Texas Department of Insurance Effective date: March 27, 1996 Proposal publication date: January 16, 1996 For further information, please call: (512) 463-6327 Subchapter K. Commercial Multi-peril Policies 28 TAC sec.5.9101 The Texas Department of Insurance adopts an amendment to sec.5.9101, concerning an exemption for reciprocals from rate filing requirements for commercial multi-peril policies, without changes to the proposed text as published in the January 16, 1996, issue of the Texas Register (21 TexReg 429). The amendment is necessary to conform this section to amendments to the Texas Insurance Code, Article 5.13-2, enacted by House Bill 1988, 74th Texas Legislature, 1995. The amendment provides for the addition of an exemption for reciprocal exchanges from the rate filing requirements of sec.5.9101 subsections (c), (d) and (e). Article 5.13-2 governs the regulation of insurance rates and provides procedures concerning rate filings for certain coverages, including general liability and commercial property insurance. Under Article 5.81, the Texas Department of Insurance is authorized to prescribe policy forms and rates for multi-peril policies of insurance and the commissioner has the authority to choose the procedure under any of the subchapters of Chapter 5 for the purpose of determining rates and forms. In 1992, the State Board of Insurance selected, through the adoption of sec.5.9101, the regulatory scheme in Article 5.13-2, applicable to commercial property insurance, to govern the regulation of forms and rates for commercial multi-peril policies. The definition of "insurer" in Article 5.13-2 is a part of sec.5.9101. When the legislature amended this definition to exempt reciprocal exchanges as well as Lloyds insurer from the rate filing requirements of Article 5.13-2 it required amending the definition of "insurer" in sec.5.9101 to include reciprocal exchanges. This amendment is necessary to bring sec.5.9101 in conformity with the exemption granted to reciprocals (previously accorded to Lloyds companies) under the amendment to Article 5.13-2 sec.3(2). The amendment conforms this section to amendments to the Insurance Code, Article 5.13-2. Reciprocal insurance exchanges are being accorded the same exemption as Lloyds insurers from the rate filing requirements of subsections (c), (d), and (e) of sec.5.9101. Commenters believe it was the intent of the legislature in amending the Insurance Code, Article 5.13-2 sec.3(2) to place reciprocal insurance exchanges on parity with Lloyds insurers regarding the application of rate filing requirements and that the amendment accomplishes that intent. The amendment ensures a uniform application of the rating scheme under sec.5.9101. Agency Response: The agency agrees with this comment. Farmers Insurance Exchange, Truck Insurance Exchange, and Fire Insurance Exchange were in favor of the adoption of the amendment. The amendment is adopted pursuant to the Insurance Code, Articles 5.81, 5. 98, and 1.03A, and the Government Code, sec.sec.2001.004 et seq. Article 5.81 authorizes the Commissioner of Insurance to approve forms for multi-peril policies of insurance and to adopt rules to carry out the purposes and objectives of the article. Article 5.98 authorizes the commissioner to adopt reasonable rules that are appropriate to accomplish the purposes of Chapter 5 of the Texas Insurance Code, which regulates rating and policy forms for property and casualty insurance. Article 1.03A authorizes the commissioner to adopt rules and regulations, for the conduct and execution of the duties and functions of the department only as authorized by statute. The Government Code, sec.sec.2001.004 et seq authorizes and requires each state agency to adopt rules of practice setting forth the nature and requirement of available procedures and to prescribe the procedures for adoption of rules by a state agency. This agency hereby certifies that the adoption have been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 6, 1996. TRD-9603163 Alicia M. Fechtel General Counsel and Chief Clerk Texas Department of Insurance Effective date: March 27, 1996 Proposal publication date: January 16, 1996 For further information, please call: (512) 463-6327 Chapter 7. Corporate and Financial Regulation Subchapter A. Examination and Corporate Custodian and Tax 28 TAC sec.7.28 The Texas Department of Insurance adopts new sec.7.28, concerning the regulation of accounting for reinsurance agreements by insurers, with changes to the proposed text as published in the November 17, 1995, issue of the Texas Register (20 TexReg 9531). A public hearing on the proposed section was held on January 18, 1996. The new section is necessary to implement House Bill 1243, sec.2 and sec.4, 74th Legislature, 1995, which amended Insurance Code, Articles 3.10 and 5.75-1, and to provide effective regulation of the accounting for reinsurance agreements. Some insurers enter into agreements that are represented to be reinsurance when such arrangements, despite their legal form, are in substance and effect financing arrangements, which have the principal purpose of producing increased surplus for the ceding insurer, typically on a temporary basis, but which provide little or no indemnification of insurance risks by the reinsurer. The department recognizes that reinsurance agreements can be entered into for the purpose of producing increased surplus and at the same time provide indemnification of insurance risks, but seeks to identify those agreements which do not by this section. The new section establishes minimum standards that must be met to support the accounting for reinsurance agreements in an insurer's financial statements. The new section incorporates several of the existing provisions of sec.7.27 of this title (relating to the Regulation of Accounting for Reinsurance Agreements by Life, Accident and Health, and Annuity Insurers) which constitutes the present standards for reinsurance contracts. After the effective date of this new section, reinsurance contracts entered into, or materially amended, on or after the effective date will be regulated under this new section. Reinsurance agreements entered into before the effective date of sec.7.28 will be regulated under sec.7.27. Subsection (a) of sec.7.28 states the intent of the commissioner in adopting this section. Subsection (b) specifies the insurers subject to the section, the applicability of the section to reinsurance agreements and amendments to reinsurance agreements and describes certain kinds of reinsurance agreements that are not subject to the section. Subsection (c)(1) enumerates conditions which if included in a reinsurance agreement, can result in the disallowance of credit for reinsurance in a ceding insurer's financial statements. Subsection (c)(2) and (c)(3) provide exceptions for reinsurance agreements that do not comply with subsection (c)(1). Subsection (d) requires a ceding insurer to notify the department when it reinsures existing or in-force business. Proposed subsection (d)(2) is redesignated as subsection (e). It provides for the disclosure in the financial statements of a ceding insurer of any increase in surplus resulting from the reinsurance of existing or in-force business. Proposed subsection (e) is redesignated subsection (f). It describes certain requirements for the execution and amending of reinsurance agreements. The agency amended the section by adding a paragraph (4) to subsection (b) to clarify the application of this section to reinsurance agreements entered into prior to the effective date of this section. The agency also amended sec.7.28(c) (1)(G) by moving clauses (i)-(vi) to Figure 1: 28 TAC sec.7.28(c)(1)(G) since they define the risks identified in the figure; deleting unnecessary language in subsection (e)(1) (now subsection (f)(1)), and deleting "null and void" in subsection (e)(3) (now subsection (f)(3)). Changes to the adopted section were also made as a result of written comments received by the agency. The agency's response to the comments, including specific changes to the section and the reasoned justification for the changes are addressed in the paragraphs that follow. COMMENTS TO sec.7.28(a) COMMENT: Several commenters stated that the preamble was vague and contained unnecessary conclusions regarding the use of reinsurance agreements. RESPONSE: The agency responds by deleting the proposed preamble and substituting the preamble in sec.7.27 of this title (Relating to Regulation of Accounting for Reinsurance Agreements by Life, Accident and Health, and Annuity Insurers) with the addition of two sentences to that preamble. One sentence describes the purpose of the section and the other sentence disclaims any authority in the department under the section to void or cancel any reinsurance agreement. Comments to sec.7.28(b) COMMENT: Several commenters stated that the application of the section should be narrowed to apply only to those reinsurance agreements that do not transfer the significant risks inherent in the business being transferred. RESPONSE: The agency responds that the section must apply to all reinsurance agreements, with the exception of those exempted by subsection (b) (3), because the section provides minimum requirements for all reinsurance agreements, including but not limited to, those that do not transfer significant risks in the business being reinsured. Most reinsurance agreements will comply with the section and consequently there will be no disallowance of a reserve credit. Furthermore, the agency finds that it would be administratively inefficient to attempt to define the types of reinsurance agreements that do not transfer the risk being reinsured and are in effect, financing agreements. COMMENT: Two commenters stated that sec.7.28(b)(2) should be changed so that the section only apply to material amendments to reinsurance agreements. RESPONSE: First, the agency notes that House Bill 1243, sec.2 states that the rules adopted to implement the section shall apply to reinsurance agreements that are amended after the effective date of such rules; however, the agency agrees that a literal application of House Bill 1243 would be inconsistent with its intent. The agency recognizes that reinsurance agreements may be amended from time to time and that such amendments do not in every instance materially affect the substance of the reinsurance agreements. Subsection (b)(2) is amended to provide that the section only applies to amendments to reinsurance agreements that materially affect the nature of an agreement. COMMENT: Concerning sec.7.28(b)(3), one commenter suggested that reinsurance arrangements which are the functional equivalent of assumption reinsurance agreements should be exempted from the section as are assumption reinsurance agreements. RESPONSE: The agency agrees with the suggestion and amended subsection (b) (3) to exempt these arrangements. The agency also amended (b)(3) to reflect additional examples of nonproportional reinsurance agreements. COMMENTS TO sec.7.28(c) COMMENT: One commenter questioned the meaning of the word "deprived" in sec.7.28(c)(1)(C). RESPONSE: The agency responds that "deprived" means the ability of the reinsurer to unilaterally appropriate surplus or assets to the material detriment of a ceding insurer. COMMENT: Concerning sec.7.28(c)(1)(D), one commenter stated that the provisions relating to involuntary termination gave the commissioner too much discretion. RESPONSE: The agency responds that the requirements of subsection (c)(1)(D) currently apply to reinsurance agreements under sec.7.27(c)(1)(D) of this title (Relating to the Regulation of Accounting for Reinsurance Agreements by Life, Accident and Health, and Annuity Insurers). New language was added to this subparagraph when it was proposed to provide an example which clarifies the language used in sec.7.27(c)(1)(D) of this title (Relating to the Regulation of Accounting for Reinsurance Agreements by Life, Accident and Health, and Annuity Insurers). The intent of the rule is to ensure that there is risk transferred to the reinsurer and the example provided describes a situation which would allow the reinsurer to reduce its risk under the agreement which is essentially what the rule is trying to regulate. To enhance clarity, subsection (c)(1)(D) is amended to reference subparagraph (F) of subsection (c) (1), which prohibits the payment by the ceding insurer to the reinsurer of amounts other than income from the reinsured policies and the word "excessive" is deleted from the example. COMMENT: One commenter questioned whether sec.7.28(c)(1)(E) applied to a conversion of coinsurance to modified coinsurance. RESPONSE: The agency responds that subsection (c)(1)(E) does not apply to a conversion of coinsurance to modified coinsurance. The agency also notes that this provision is currently contained in sec.7.27(c)(1)(F) of this title (Relating to the Regulation of Accounting for Reinsurance Agreements by Life, Accident and Health, and Annuity Insurers) and applies to the contractually required termination or recapture of reinsurance ceded. COMMENT: Two commenters stated that the language, "all of the risks," in sec.7.28(c)(1)(G) is contrary to Insurance Code, Article. 3.10, which authorizes an insurer to transfer part of a risk. RESPONSE: The agency believes subsection (c)(1)(G) is not contrary to Insurance Code, Article. 3.10 since subsection (c)(2)-(3) recognizes the statutory authority of an insurer to reinsure part of a risk. To enhance clarity, the agency amended subparagraph (G) by deleting "all of the," added a sentence to explain when full credit may be reflected in an insurer's financial statement and included a reference to subsection (c)(2)-(3). COMMENT: One commenter stated that sec.7.28(c)(1)(H) gave the commissioner too much discretion in determining which risks are insignificant. RESPONSE: The agency responds that subsection (c)(1)(H) does not contemplate commissioner's discretion in determining which risks are insignificant. Examples of significant and insignificant risks are identified in Figure 1, which must be read in conjunction with subsection (c)(1)(H). COMMENT: One commenter stated the requirement in subsection (c)(1)(H) for an insurer to segregate assets conflicted with Insurance Code, Article 3.10. RESPONSE: The agency responds by amending subsection (c)(1)(H) to provide that an insurer may comply with subparagraph by specifically identifying the underlying assets, in lieu of segregating the underlying assets. COMMENT: Two commenters stated the formula in sec.7.28(c)(1)(J) was overly restrictive. RESPONSE: The agency responds that subsection (c)(1)(J) only applies to subsection (c)(1)(I), which is an exception from the general requirements of the rule, and added clarifying language. The agency also notes the formula is an example of an acceptable formula, not the only formula which may be used. Any formula used by an insurer must identify its investment earnings, not some other index, if risks associated with the underlying assets are to be transferred to a reinsurer. COMMENT: One commenter asked if the settlements required sec.7.28(c)(1)(K) could be made by offsetting debits and credits between the parties, or must it be in cash only. RESPONSE: The agency responds that the purpose of the paragraph is to require periodic settlement of accounts between the parties. Settlements may be made in forms other than cash; however, the agreement should provide that demand for settlement may be in the form of cash. The agency also notes that this provision is currently in sec.7.27(G) of this title (Relating to the Regulation of Accounting for Reinsurance Agreements by Life, Accident and Health, and Annuity Insurers). COMMENT: One commenter asked if sec.7.28(c)(1)(N) meant the adopted section was satisfied if all of the significant risks are transferred. RESPONSE: The agency responds that the entire adopted section must be considered in determining whether an agreement is in compliance. COMMENT: Two commenters stated that the criteria in sec.7.28(c)(3) gave the commissioner too much discretion to determine when credit for reinsurance is justified and should be more objective. RESPONSE: The agency responds that the nature of reinsurance agreements that do not transfer significant risk are complex, making it difficult and inefficient to comprehensively define objective criteria beyond those in this section. COMMENT: One commenter stated that agreements approved under sec.7.28(c)(3) could be disapproved in other states. RESPONSE: The agency responds that Insurance Code, Article 3.10 requires subsection (c)(3) in order to recognize the transfer of part of a risk. COMMENT: One commenter suggested that sec.7.28(c)(4) be deleted since it provides no guidance and could be confusing. RESPONSE: The agency responds that paragraph (4) paraphrases the statutory language in Insurance Code, Article 3.10(l) and expresses the legislative mandate for this section. COMMENTS TO sec.7.28(d) COMMENT: Another commenter asked why sec.7.28(d) required reinsurance agreements which involve the reinsurance of business issued prior to the effective date of the reinsurance agreement to be filed within 30 days and what was the authority for this requirement. RESPONSE: The agency responds that the 30-day notification is necessary to provide prompt notice to the department so it may efficiently discharge its regulatory duties. The agency believes the 30-day notification is a reasonable amount of time to notify the agency of execution of such an agreement. The notification is informational so the department derives its authority from the rulemaking authority granted in Insurance Code, Articles 3.10 and 1.32. To lessen the burden on insurers, subsection (d) is amended to require a ceding insurer to provide a written notification of the basic facts of the agreement to the department. The department may then determine what further information, if any, may be necessary. Subsection (d) is also retitled as "Required notice to the department." COMMENT: Concerning sec.7.28(d)(2), two commenters stated that the pro forma income tax could be difficult to calculate and would require the keeping of additional accounting records. The accuracy of the example provided was also questioned. RESPONSE: The agency responds that the pro forma income tax is routinely estimated by insurers in the day to day course of operations. The agency disagrees that the example provided was inaccurate. The agency amended subsection (d)(2) by redesignating it as subsection (e), retitling it as "Financial statement disclosure," and adding clarifying language in the adopted section. COMMENTS TO sec.7.28(e) COMMENT: One commenter stated that requirement of sec.7.28(e) to complete a written contract within 90 days was overly restrictive and suggested it be deleted. RESPONSE: The agency responds that this is the current requirement in sec.7. 27(d)(2) of this title (Relating to the Regulation of Accounting for Reinsurance Agreements by Life, Accident and Health, and Annuity Insurers) and believes that uniformity between the two sections is desirable on matters such as this. Subsection (e) is redesignated as subsection (f) in the adopted section. Comments generally in favor of the section, but with recommendations for change were received from the American Council of Life Insurance, National Association of Independent Insurers, Texas Life Insurance Association, the Texas Legal Reserve Officials Association and Transport Life Insurance Company. Comments generally opposed to the section, and with recommendations for change were received from the Insurance Alliance of America, Texas Association of Insurance Officials and Provident Life Insurance Company. The section is adopted under the Insurance Code, Articles 1.03A, 1.11, 1.32, 3.10 and 5.75-1. The Insurance Code, Article 1.03A, provides the commissioner with the authorization to adopt rules and regulations for the conduct and execution of the duties and functions by the department. Article 1.11 authorizes the commissioner to change the form of the annual statement to elicit a true exhibit of an insurer's financial condition. Article 1.32 relates to the evaluation of the financial condition of insurers. Articles 3. 10 and 5.75-1 authorize rules relating to accounting and financial statement requirements and the treatment of reinsurance agreements between insurers. sec.7.28. Regulation of Accounting for Reinsurance Agreements by Insurers. (a) Preamble (1) The Texas Department of Insurance recognizes that licensed insurers routinely enter into reinsurance agreements, contracts, treaties or arrangements (hereinafter referred to as reinsurance agreements) that yield legitimate relief to the ceding insurer from strain to surplus. (2) The department, however, is aware that some life, accident and health, and annuity insurers, in the capacity of ceding insurer, have at times entered into reinsurance agreements primarily as financing arrangements which have the principal purpose of producing increased surplus for the ceding insurer, typically on a temporary basis, and which provide little or no indemnification of policy benefits by the reinsurer. In addition, the department is concerned with reserve credits taken under reinsurance agreements, which provide some indemnification of policy benefits where those policy benefits are not included in the gross reserves established by the ceding insurer, such as catastrophic mortality or extraordinary survival. The department adopts this section to require proper accounting in order to assure the integrity of financial statements filed by insurers with the department, to identify any surplus increase which results from entering certain reinsurance agreements and to monitor reinsurance agreements which may be used primarily as financing arrangements. This section does not confer the authority to the department to void or cancel any reinsurance contract or agreement. The terms of such reinsurance agreements may not comply in substance with the requirements of subsection (c) of this section and may violate one or more of the following: (A) the Insurance Code, Articles 1.32, 3.60, 14.33, 21.21, and 22.12, relating to financial condition of insurers, thus resulting in distorted financial statements which do not properly reflect the financial condition of the ceding insurers; (B) the Insurance Code, Articles 3.10 and 5.75-1, relating to credit for reinsurance reserve credits, thus resulting in a ceding insurer improperly reducing liabilities or establishing assets for reinsurance ceded; and (C) the Insurance Code, Articles 1.32 and 21.28-A, relating to creating a situation that may be hazardous to policyholders and the people of this state. (b) Applicability. (1) This section shall apply to all insurers licensed in this state and operating under the Insurance Code, Chapters 2, 3, 6, 8, 10, 11, 12, 13, 14, 20, or 22, including property and casualty insurers as respects their direct accident and health business. This section shall also apply to licensed foreign insurers unless such foreign insurers are subject to a substantially similar regulation in their domiciliary state and who are operating in this state under such chapters. To pursue the exception to this section, the foreign ceding insurer shall provide to the commissioner of insurance upon request evidence of similarity in the form of statutes, regulations, and interpretation of the standards utilized by its state of domicile. (2) This section shall apply to reinsurance agreements entered into on or after the effective date of this section, and to reinsurance agreements that are amended, on or after the effective date of this section, in such manner as to materially change the nature of the agreement, including but not limited to amendments which directly affect one or more of the following: (A) the profit and loss features of the reinsurance agreement ; (B) the commission structure of the reinsurance agreement; (C) the amount of risk or liability transferred pursuant to the reinsurance agreement; (D) the termination date of the reinsurance agreement is extended by 90 days or more; or (E) any of the conditions described in subsection (c)(1)(A)-(N) of this section. (3) This section shall not apply to the types of reinsurance described in subparagraphs (A) and (B) of this paragraph. (A) Assumption assumption reinsurance agreements, yearly renewable term reinsurance or certain nonproportional reinsurance agreements such as stop loss, or catastrophe, or excess of loss reinsurance agreements. (B) Sales and acquisitions of blocks of insurance business that utilize 100% coinsurance arrangements or other similar reinsurance arrangements as a result of regulations in many states that require affirmative approval of policyholders/insureds for an assumption reinsurance arrangement. These coinsurance arrangements and other similar reinsurance arrangements typically are used in combination with assumption reinsurance arrangements. Such coinsurance arrangements and other similar reinsurance arrangements will be exempt from the financial statement disclosure required by subsection (e) of this section provided the conditions described in clauses (i)-(iii) of this subparagraph are met. The exemption set forth in this paragraph shall apply only with respect to subsection (e) of this section and shall not apply in respect of any other statues and regulations which may be applicable to such arrangements. (i) The arrangement contemplates a transaction that is substantially similar to an assumption reinsurance transaction in terms of its economic nature in that the risk of a block of insurance business is transferred from a ceding insurer to a reinsuring reinsurer with the objective of effecting a sale and purchase of such block of insurance business; (ii) the arrangement contemplates the complete and final transfer of all insurance risk subject to the arrangement; and (iii) the agreements contain no provisions which contemplate cancellation or the recapture of the insurance risk transferred by the agreements. (4) Reinsurance agreements entered into prior to the effective date of this section will continue to be subject to sec.7.27 of this title (relating to Regulation of Accounting for Reinsurance Agreements by Life, Accident and Health, and Annuity Insurers), sec.7.611 of this title (relating to Indemnity Reinsurance Agreements-Required Provisions) and all other applicable existing statutes and regulations. (c) Accounting requirements. (1) No insurer subject to this section shall, for reinsurance ceded, reduce any liability or establish any asset in any financial statement filed with the Texas Department of Insurance if the agreement includes, in substance or effect, any of the conditions addressed in subparagraphs (A)-(N) of this paragraph: (A) Renewal expense allowances provided or to be provided to the ceding insurer by the reinsurer in any accounting period, are insufficient to cover anticipated allocable renewal expenses of the ceding insurer on the portion of the business reinsured, unless a liability is established for the present value of the shortfall (using assumptions equal to the applicable statutory reserve basis on the business reinsured). Those expenses include commissions, premium taxes and direct expenses including, but not limited to, billing, valuation, claims and maintenance expected by the company at the time the business is reinsured. (B) The reserve credit taken by the ceding insurer is greater than the underlying reserve of the ceding insurer supporting the policy obligations transferred under the contract. (C) The ceding insurer can be deprived of surplus or assets at the reinsurer's option or automatically upon the occurrence of some event, such as the insolvency of the ceding insurer; except that termination of the reinsurance agreement by the reinsurer for non-payment of reinsurance premiums or other amounts due, such as modified coinsurance reserve adjustments, interest and adjustments on funds withheld, and tax reimbursements, shall not be considered to be such a deprivation of surplus or assets. (D) The ceding insurer is required to reimburse the reinsurer for negative experience under the agreement, except that neither offsetting experience refunds against current and prior years' losses under the agreement nor payment by the ceding insurer of an amount equal to the current and prior years' losses under the agreement upon voluntary termination of in-force reinsurance by that ceding insurer shall be considered such a reimbursement to the reinsurer for negative experience. Voluntary termination does not include situations where termination occurs because of unreasonable provisions which allow the reinsurer to reduce its risk under the agreement. An example of such a provision is the right of the reinsurer to increase reinsurance premiums or risk and expense charges to excessive levels that violate subparagraph (F) of this paragraph forcing the ceding company to prematurely terminate the reinsurance treaty. (E) The ceding insurer must, at specific points in time scheduled in the agreement, terminate or automatically recapture all or part of the reinsurance ceded. (F) The reinsurance agreement involves the possible payment by the ceding insurer to the reinsurer of amounts other than from income reasonably expected from the reinsured policies. For example, it is improper for a ceding company to pay reinsurance premiums, or other fees or charges to a reinsurer which are greater than the direct premiums collected by the ceding company. (G) The agreement does not transfer all of the significant risks inherent in the business being reinsured. Clause (i) Figure 1 of this subparagraph identifies for a representative sampling of products or type of business, the risks which are considered to be significant. The transfer of all of the significant risks is the only basis on which an insurer may reflect in its financial statements the full credit attributable to a reinsurance agreement. If less than all of the significant risks are transferred, the insurer may reflect partial credit in its financial statements for the transfer of a part of a risk by complying with paragraphs (2) or (3) of this subsection. For products not specifically included, the risks determined to be significant shall be consistent with those identified in Figure 1: 28 TAC sec.7.28(c)(1)(G). Figure 1: 28 TAC sec.7.28(c)(1)(G) (i) morbidity; (ii) mortality; (iii) lapse is the risk that a policy will voluntarily terminate prior to the recoupment of a statutory surplus strain experienced at issue of the policy; (iv) credit quality is the risk that invested assets supporting the reinsured business will decrease in value. The main hazards are that assets will default or that there will be a decrease in earning power. It excludes market value declines due to changes in interest rate; (v) reinvestment is the risk that interest rates will fall and funds reinvested (coupon payments or moneys received upon asset maturity or call) will therefore earn less than expected. If asset durations are less than liability durations, the mismatch will increase; (vi) disintermediation is the risk that interest rates rise and policy loans and surrenders increase or maturing contracts do not renew at anticipated rates of renewal. If asset durations are greater than the liability durations, the mismatch will increase. Policyholders will move their funds into new products offering higher rates. The company may have to sell assets at a loss to provide for these withdrawals. (H) The credit quality, reinvestment, or disintermediation risk is significant for the business reinsured and the ceding company does not (other than for the classes of business excepted in subparagraph (I) of this paragraph) either transfer the underlying assets to the reinsurer, legally segregate such assets in a trust or escrow account, or otherwise establish a mechanism satisfactory to the commissioner which either legally segregates, or specifically identifies, by contract or contract provision, the underlying assets. Such mechanism must indicate that the assets correspond to the significant risks so as to specify which party shall assume the credit quality, reinvestment or disintermediation risks related thereto. (I) Notwithstanding the requirements of subparagraph (H) of this paragraph, the assets supporting the reserves for classes of business identified in clauses (i)-(vi) of this subparagraph and any classes of business which do not have a significant credit quality, reinvestment or disintermediation risk may be held by the ceding company without segregation or other specific identification of such assets. (i) Health Insurance-LTC/LTD; (ii) Traditional Non-Par Permanent; (iii) Traditional Par Permanent; (iv) Adjustable Premium Permanent; (v) Indeterminate Premium Permanent; and (vi) Universal Life Fixed Premium (no dump-in premiums allowed). (J) For purposes of paragraph (I) only, the associated formula for determining the reserve interest rate adjustment must use a formula which reflects the ceding company's investment earnings and incorporates all realized and unrealized gains and losses reflected in the statutory statement. (The exhibit, line and column number reflect the appropriate reference in the 1995 Annual Statement for Life and Accident and Health Insurers and the 1995 Annual Statement for Fire and Casualty Insurers as adopted by the commissioner. The same financial information shall be utilized from subsequent annual statements adopted by the commissioner regardless of changes in page, line, or column number.) The following is an acceptable formula: Figure 2: 28 TAC sec.7.28(c)(1)(J). (K) Settlements are made less frequently than quarterly or payments due from the reinsurer are not made in cash within 90 days of the settlement date. (L) The ceding insurer is required to make representations or warranties not reasonably related to the business being reinsured. (M) The ceding insurer is required to make representations or warranties about future performance of the business being reinsured. (N) The reinsurance agreement is entered into with a primary effect for the principal purpose of producing increased surplus for the ceding insurer, typically on a temporary basis, while not transferring all of the significant risks inherent in the business reinsured and, in substance or effect, the expected potential liability to the ceding insurer remains basically unchanged. (2) Notwithstanding paragraph (1) of this subsection, an insurer subject to this section may, with the prior approval of the commissioner, take such reserve credit or establish such asset as the commissioner may deem consistent with the Insurance Code, agency rules and regulations, including actuarial interpretations or standards adopted by the department. (3) Notwithstanding paragraph (1)(G) of this subsection, an insurer subject to this section that enters into an agreement that transfers less than all of the significant risks contemplated the minimum risks required by subsection (c)(1)(G) this subsection may take such reserve credit or establish such asset that relates to that part of the insurer's risks actually transferred under such agreement so long as such reserve credit or asset established under this paragraph does not exceed amounts that are actuarially justifiable using reasonable assumptions acceptable to the commissioner. An insurer that enters into such agreement must file the agreement with the department within 30 days of its execution. The ceding insurer shall include with the agreement the information described in subparagraphs (A)-(C) of this paragraph: (A) A detailed description of the financial impact of the agreement on the ceding insurer's statutory financial statements, certified by the company's appointed valuation actuary that the financial statements of the ceding insurer accurately reflect the amount of the risk transferred. (B) A detailed description of the risks to be transferred under the agreement and the actuarial methodologies used to quantify such risks. (C) A statement, signed and attested to, by the valuation actuary that the proposed method of accounting for the agreement complies in all material respects with the requirements of the Actuarial Standards Board relating to reinsurance including, but not limited to Actuarial Standard of Practice Number 11. If the department finds the reinsurance agreement does not transfer the amounts reflected in the ceding insurer's financial statements, the department shall disallow those amounts. (4) Any reinsurance agreement subject to this section must be accurately reflected in the financial statements of the ceding insurer, notwithstanding that the agreement complies with this section. (d) Required notice to department. A ceding insurer shall notify the department in writing when it enters into a reinsurance agreement that involves the reinsurance of business issued prior to the effective date of the reinsurance agreement, or makes an amendment, described in subsection (b)(2) of this section, to a reinsurance agreement, within 30 days of the execution of the reinsurance agreement or amendment, unless the reinsurance agreement or amendment is filed with the department under paragraphs (2) or (3) of subsection (c) of this section. Such notice shall include the names of the parties to the reinsurance agreement, the effective dates of the reinsurance agreement, the type of reinsurance agreement (such as coinsurance or quota share) and any explanatory comments the ceding insurer considers appropriate. Agreements entered into after the effective date of this regulation which involve the reinsurance of business issued prior to the effective date of the agreements, along with any subsequent amendments thereto, shall be filed by the ceding company with the commissioner within 30 days from the date of its execution. A ceding insurer shall maintain Each filing shall include data detailing the financial impact of the transaction. The ceding insurer's actuary who signs the financial statement actuarial opinion with respect to valuation of reserves shall consider this section regulation and any applicable actuarial standards of practice when determining the proper credit in financial statements filed with this department. The actuary should maintain adequate documentation and be prepared upon request to describe the actuarial work performed for inclusion in the financial statements and to demonstrate that such work conforms to this section regulation. (e) Financial statement disclosure. Any increase in surplus net of federal income tax resulting from arrangements described in subsection (d) of this section shall be identified separately on the insurer's statutory financial statement as a surplus item (aggregate write-ins for gains and losses in surplus in the Capital and Surplus Account, page 4 of the Annual Statement) and recognition of the surplus increase as income shall be reflected on a net of tax basis in the "Reinsurance ceded" line, page 4 of the Annual Statement as earnings emerge from the business reinsured. (For example, on the last day of calendar year N, Company XYZ pays a $20 million initial commission and expense allowance to company ABC for reinsuring an existing block of business. Assuming a 34% tax rate, the net increase in surplus at inception is $13.2 million ($20 million-$6.8 million) which is reported on the "Aggregate write-ins for gains and losses in surplus" line in the Capital and Surplus account. Six million, eight hundred thousand dollars (34% of $20 million) is reported as income on the "Commissions and expense allowances on reinsurance ceded" line of the Summary of Operations. Six million, eight hundred thousand dollars (34% of $20 million) is reported as a federal income tax expense. At the end of the year N+1 the business has earned $4 million. ABC has paid $.5 million in profit and risk charges in arrears for the year and has received a $1 million experience refund. Company ABC's annual statement would report $1. 65 million (66% of ($4 million- $1 million-$.5 million) up to a maximum of $13. 2 million) on the "Commissions and expense allowance on reinsurance ceded" line of the Summary of Operations, and -$1.65 million on the "Aggregate write-ins for gains and losses in surplus" line of the Capital and Surplus account. The experience refund would be reported separately as a miscellaneous income item in the Summary of Operations.) (f) Written Agreements. (1) No agreement or amendment to any such agreement may be used to reduce any liability or to establish any asset in any financial statement filed with the department, unless the amendment to the agreement or a binding letter of intent has been duly executed by both parties no later than the "as of date" of the financial statement , except for facultative certificates duly executed by the reinsurer or its duly appointed agent, no later than the "as of date" of the quarterly or annual financial statement. A letter of intent may consist of a cover note or placement slip signed by the assuming insurer or its designated agent and accepted in writing by the ceding insurer. (2) In the case of a letter of intent, a contract or an amendment to a contract must be executed within a reasonable period of time, not exceeding 90 days from the execution date of the letter of intent, in order for credit to be granted for the reinsurance ceded. (3) The reinsurance agreement shall contain provisions which provide that: (A) the agreement shall constitute the entire agreement between the parties with respect to the business being reinsured thereunder and that there are no understandings between the parties other than as expressed in the agreement; and (B) any change or modification to the agreement must be shall be null and void unless made by amendment to the agreement and signed by both parties. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 7, 1996. TRD-9603324 Alicia M. Fechtel General Counsel and Chief Clerk Texas Department of Insurance Effective date: March 28, 1996 Proposal publication date: November 17, 1995 For further information, please call: (512) 463-6327 Chapter 11. Health Maintenance Organizations The Commissioner of Insurance adopts amendments to Chapter 11, concerning health maintenance organizations, by amending sec.sec.11.2, 11.207, 11.301, and 11.806, and adding new sec.sec.11.1604, and 11.1702-11.1704. Sections 11.806, 11. 1604, 11.1702 are adopted with changes to the proposed text as published in the December 22, 1995 issue of the Texas Register (20 TexReg 10965). Sections 11.2, 11.207, 11.301, 11.1703 and 11.1704 are adopted without changes and will not be republished. These amendments are necessary, in part, to implement Insurance Code, Article 21.52F (enacted by the 74th Legislature, 1995, in House Bill 3111 relating to certification of certain nonprofit health corporations), and amendments to the Health Maintenance Organization Act, Insurance Code, Articles 20A.02, 20A.06(a)(3), and 20A.26(f) (enacted by the 74th Legislature, 1995, in Senate Bill 1407 relating to contractual arrangements among Health Maintenance Organizations (HMOs), physicians, and other providers). The commissioner adopts the sections necessary to implement Article 21.52F after consideration of recommendations submitted by the Approved Nonprofit Health Corporation Advisory Committee appointed by the commissioner pursuant to the 74th Legislature's directive in Section 2 of House Bill 3111. Specifically, these amendments are necessary (1) to establish oversight and monitoring requirements for HMOs that contract with approved nonprofit health corporations (ANHCs), in which ANHCs agree to arrange for or provide health care services, other than medical care or services ancillary to the practice of medicine, and with provider HMOs, in which provider HMOs agree to arrange for or provide health care services on a risk-sharing or capitated risk arrangement on behalf of HMOs as part of the HMOs' delivery networks; (2) to provide requirements for issuance of certificates of authority to ANHCs; (3) to provide requirements for agents of ANHCs which hold certificates of authority; (4) to establish that ANHCs which hold certificates of authority are subject to the same statutes and rules as HMOs and considered HMOs for purposes of regulation and regulatory enforcement; (5) to clarify financial reporting requirements related to claim liabilities; (6) to establish and clarify procedures for withdrawal of HMO applications for certificates of authority; (7) to establish procedures and requirements for accepting filings for review by the department; and (8) to provide for a pending status for complete filings upon receiving consent in writing to waive the statutory deemer of approval when HMOs need more time to make corrections necessary to receive the commissioner's approval. The amendments as adopted differ in some respect from the proposed published amendments based on further study generated by comments received. Section 11.1503 has been withdrawn based upon comments received. Specific changes and reasoned justification for the amendments and agency responses to comments are addressed in the Summary of Comments. The amendments to this chapter shall become effective April 1, 1996. Section 11.2(b)(5) adds the definition of approved nonprofit health corporation set forth in Insurance Code, Article 21.52F sec.1(2) and includes the acronym ANHC as an alternative term. Section 11.2(b)(8) adds a new definition of contract holder because that term is used throughout the text of this chapter. Paragraphs (14), (16), (17) and (22) of sec.11.2(b) respectively add the definitions of HMO delivery network, person, physician, and provider set forth in recent amendments to Insurance Code, Article 20A.02 (enacted by the 74th Legislature, 1995, in Senate Bill 1407 relating to contractual arrangements among HMOs physicians, and other providers). Section 11.2(b)(19) and (22) adds new definitions of "primary HMO" and "provider HMO" to differentiate between HMOs that contract directly with individuals or groups to provide or arrange to provide a health care plan and HMOs that contract with other HMOs to provide health care services. Section 11.207, as amended, adds language to clarify existing language relating to an HMO applicant's request to withdraw an application for certificate of authority from consideration by the department and adds a provision to clarify that upon receipt of a request to withdraw an application the name reservation for the HMO applicant will be canceled. Section 11.301, as amended, amends paragraph (1) and adds paragraph (7). Amended paragraph (1) clarifies that a filing will not be accepted for review by the department until it is complete. New paragraph (7) establishes procedures for incomplete filings and complete filings, and provides for the department to hold pend a filing in a pending status upon receipt of an HMO's consent to waive the statutory deemer period. Section 11.806(a), as amended, adds a sentence to require each liability incurred by an HMO to be reported on each financial statement filed with the department, including, as applicable, reports filed pursuant to sec.11.304 (relating to Annual Reports, Other Reports, and Taxes). Section 11.806(c), as amended, deletes existing language and adds a provision that an HMO shall not record a credit on its balance sheet for any capitated risk or other risk-sharing arrangement with a network physician or provider relating to out-of-service area or emergency care provided by any non-network physician or provider. For purposes of amended subsection (c), a non-network physician or provider means a physician or provider who has not directly or indirectly contracted with an HMO or an HMO's network physicians or providers to provide medical or health care services to the HMO's enrollees. Proposed new sec.11. 1503 was deleted based on comments opposing a prohibition on capitating a provider for emergencies, referrals and other out-of-plan care. New sec.11.1604 establishes requirements for an HMO that enters into a contract with an ANHC in which the ANHC agrees to arrange for or provide health care services other than medical care or services ancillary to the practice of medicine, or with a provider HMO in which the provider HMO agrees to arrange for or provide health care services on a risk-sharing or capitated risk-sharing arrangement on behalf of the primary HMO as part of the primary HMO delivery network. Under these circumstances, sec.11.1604 requires an HMO to: (1) submit to the department a monitoring plan; (2) file with the department, pursuant to sec.11. 301(5), a copy of the form of the agreement with an ANHC or provider HMO which must meet certain described regulatory requirements; and (3) conduct an on-site audit of the ANHC or provider HMO no less frequently than annually. New sec.11.1702 implements legislation enacted by the 74th Legislature, 1995, in House Bill 3111 by providing for issuance of a certificate of authority to an ANHC. New sec.11.1703 establishes that an agent for an ANHC with a certificate of authority or provisional certificate of authority under Insurance Code, article 21.52F is considered an HMO agent subject to the same requirements as an HMO agent. New sec.11.1704 clarifies that an ANHC with a certificate of authority or provisional certificate of authority is an HMO for purposes of regulation and regulatory enforcement. General. Most commenters express general support for the proposed rule amendments and offered comments or concerns on specific sections of the proposed amendments. One commenter supports the department's role to assure the solvency of HMOs which give global capitation to ANHCs and believes the recommendations of the ANHC Advisory Committee support the department's efforts. One commenter states that the rules adhere to the general principles of consumer protection set out by members of the ANHC Advisory Committee and improve upon the details. Another commenter states that the rules build on and strengthen the ANHC Advisory Committee efforts. This commenter adds that the ANHC Advisory Committee's main concerns were: (1) to assure that ANHCs accepting global capitation are essentially regulated just like HMOs because consumers do not perceive ANHCs as being any different from other kinds of HMOs; and (2) to assure that nothing about the subcontracting relationship in any way dilutes the primary HMO's responsibility to comply with all the consumer protection rules at both the department and the Texas Department of Health. This commenter also states that clarifying the authority and responsibilities of primary HMOs in relation to provider HMOs and ANHCs will streamline and reduce costs of enforcement of TDI and TDH. Agency Response: The agency appreciates the written comments received as well as the oral comments provided at the public hearing. In addition, the agency appreciates the role of the ANHC Advisory Committee as a valuable contribution to this rulemaking process. Adopted sections 11.1604, 11.1702, 11. 1703 and 11.1704 incorporate many of the recommendations of the ANHC Advisory Committee. These sections also incorporate changes to address in more detail regulatory and solvency concerns regarding contracts between primary HMOs and ANHCs and primary HMOs and provider HMOs. The agency shares the concerns of the ANHC Advisory Committee as stated by the commenter and believes the adopted sections address these concerns. sec.11.2(b)(8)-Definitions-Contact holder. A commenter who commented on the proposed amendments to Chapter 11, concerning health maintenance organizations, published in the December 15, 1995 issue of the Texas Register (20 TexReg 10741) suggests adding a definition of "contract holder". Another commenter states that the proposed definition of "contract holder" is appropriate. Agency Response: The term "contract holder" is used throughout the text of Chapter 11 and is necessary and appropriate to clarify the meaning of the term. The term "contract holder" does not encompass providers, physicians, other HMOs or approved nonprofit health care corporations who contract with an HMO to arrange for or provide medical care or health care services. sec.11.2(b)(14)-Definitions-HMO delivery network. A commenter recommends amending sec.11.2(b)(14) to provide that the HMO delivery network will not require an enrollee to travel more than 25 miles to access services of a primary care physician or primary care provider. Agency Response: The Texas Department of Health has adopted rules concerning the maximum mileage an enrollee must travel to reach HMO physicians and providers. Title 25 TAC sec.119.4 (relating to Texas Department of Health, HMO Regulations concerning Geographic Service Area) currently provides that an enrollee shall not be required to travel in excess of 50 miles to reach a source of primary physician health care and acute hospital care, except that other locations may be included in the service area upon providing the Texas Department of Health with documentation which provides support for traveling acceptable longer distances. It would be inappropriate for this department to adopt a rule inconsistent with this section adopted by the Texas Board of Health. sec.11.2(b)(17)-Definitions-Provider. A commenter recommends adding "physician assistant" to the definition of "provider" because "physician assistants" are licensed and authorized in the State of Texas to provide a health care service. Agency Response: The definition of "provider" in the rule is taken from the amendment to the HMO Act, Insurance Code, Article 20A.02(n) (enacted by the 74th Legislature, 1995, in Senate Bill 1407). The definition clearly encompasses a physician assistant who is licensed and authorized in the State of Texas to provide a health care service. The agency does not believe it is necessary to clarify that physician assistants are included within the definition of "provider". sec.11.806-Liabilities-Repeal of sec.11.806(c). One commenter requests modification of proposed new sec.11.1503 and the repeal of sec.11.806(c) because the commenter opposes a prohibition on capitating a provider for emergencies, referrals, and other out-of-plan care. One commenter opposes the repeal of sec.11.806(c) because nothing in enacted Senate Bill 1407 or enacted House Bill 3111, the focus of these proposed rules, would require deletion of this subsection. Another commenter expresses uncertainty why the department feels it necessary to remove an HMO's ability to transfer responsibility for certain liabilities to physicians and providers particularly under the new definitions adopted by House Bill 3111 and Senate Bill 1407 and the proposed rules; however, the commenter supports repeal of sec.11.806(c). This commenter, addressing both proposed sec.11.1503 and repeal of sec.11.806(c), questions why the master contract may not include out-of-service area medical and emergency services. This commenter states that: (1) an HMO will have additional, perhaps unknown, liabilities if it is unable to contract and pay for those services through the master contract; (2) the master contractor will be unable to deliver medical services needed by the HMO, which will reduce its ability to negotiate better rates for its doctors and providers; (3) the additional costs for services outside the contract will be borne by employers and employees in their health plans; (4) if the HMO remains financially responsible, the HMO should be able to seek the best price and services for its contract holders, and (5) the only beneficiaries of this change are the physicians and providers who deliver out-of-network services. Agency Response: The agency has modified the proposals by withdrawing sec.11. 1503 and making additional amendments to sec.11.806. After close review of the comments and further evaluation of this matter, the agency agrees it is not necessary to strictly prohibit an HMO from paying capitation to physicians, providers, provider HMOs, and ANHCs for emergencies, referrals, and out-of- service area care. The agency can achieve its purpose to address financial solvency concerns through less restrictive means by amending sec.11. 1806 to clarify and establish accounting requirements for HMOs. The agency agrees that nothing enacted in Senate Bill 1407 or House Bill 3111 contemplates this prohibition or requires deletion of sec.11.1806(c). The agency's foremost intent by these proposals was to assure the financial solvency of HMOs. Physicians, providers, and ANHCs are not subject to regular financial monitoring by the department as are licensed HMOs. The agency has concerns that some HMOs may transfer by contract, under capitated or risk- sharing arrangements, liabilities and expenses for emergencies, referrals, or out-of-service area care to physicians, providers or ANHCs who are financially insolvent or unable to assume these potentially catastrophic insurance risks. If the contracting physician, provider or ANHC cannot pay, the HMO which transfers the risk clearly bears complete financial responsibility for payment of all expenses and liabilities transferred by contract. However, the agency, and often the HMO, is unable to adequately monitor the financial solvency of the HMO if these expenses and liabilities are not properly recorded on each HMO financial statement filed with the agency. Therefore, the agency has made changes to the original proposal to assure that each HMO properly records these liabilities and expenses, including recordation of expenses and liabilities for emergency care and authorized referrals and out-of-service area care that have been transferred by contract to physicians, providers, provider HMOs and ANHCs. The deletion of subsection (c) was intended to eliminate a source of confusion by some HMOs with regard to accounting treatment of out-of-service area and emergency care services provided by non-network physicians and providers in which liabilities have been transferred by contract to physicians and providers through capitation or other risk-sharing-type contracts. Some HMOs have interpreted sec.11.806(c) to mean that HMOs do not have to record these claim liabilities if, pursuant to sec.11.806(c), these claim liabilities have been transferred by contract to physicians or providers through capitated risk or other risk-sharing arrangements. Modifications have been made to subsections (a)-(c) of sec.11.806 to more clearly reflect agency intent by providing: (1) an HMO must disclose on each financial statement filed with the department all liabilities and expenses relating to medical and health care services provided by HMO delivery network and non-network physicians and providers; and (2) an HMO may not record a balance sheet credit for any capitated risk or other risk- sharing arrangement with a network physician or provider relating to out-of- service area or emergency care provided by any non-network physician or provider. Specifically, amendments to sec.11.806(a) require that each liability incurred by an HMO must be duly disclosed on its financial statements. Further, sec.11.806(c) has been changed to prohibit any credit on an HMO's balance sheet for any capitated risk or other risk-sharing arrangements with a network physician or provider relating to out-of-service area or emergency care provided by any non-network physician or provider. sec.11.1503-Reinsurance. Most comments on sec.11.1503 were made in conjunction with sec.11.1806(c). A few commenters strongly oppose this section and recommend its deletion. A few commenters request clarification of this section. Agency Response: The agency agrees the section should not be adopted, and sec.11.1503 has been withdrawn and sec.11.806(a)-(c) has been changed. The agency's response for this section is included in the response on sec.11.1806(c) because the issues for both rules are so closely related. sec.11.1604-Requirements for Certain Contracts between Primary HMOs and ANHCs and Primary HMOs and Provider HMOs. Several commenters support this section in general. Many commenters requested clarification that sec.11.1604 does not apply to contracts with ANHCs for medical services only. One commenter requests clarification that an ANHC or provider HMO may contract to provide "health care" services (which includes all services) under capitation without limitation. One commenter recommends deletion of references to primary HMO oversight of provider HMOs where the Texas Department of Insurance (TDI) or the Texas Department of Health (TDH) already has such oversight authority. Agency Response: The agency has changed the first paragraph of sec.11.1604 for clarification. Section sec.11.1604 is not intended to apply to a primary HMO that contracts with an ANHC in which the ANHC: (1) contracts to provide only medical care or arrange to provide only medical care through subcontracts with other physicians; and (2) contracts to provide through other providers any services that are ancillary to the practice of medicine, other than hospital or other institutional or inpatient provider services. ANHCs which provide only these services and do not provide any other health care services, such as hospital or other institutional or inpatient provider services, are "physicians" for purposes of determining primary HMO regulatory contractual requirements. The requirements of sec.11.1604 do not apply to contracts between primary HMOs and physicians acting solely as physicians. The same contractual requirements should apply to contracts between primary HMOs and physicians who are not ANHCs as apply to contracts between primary HMOs and physicians who are ANHCs if the primary HMO contracts with these physicians (including ANHCs) to arrange for or provide services described in Insurance Code, Article 20A. 26(6) (relating to physician contractual arrangements). An HMO may contract with an ANHC or provider HMO to provide "health care" services" (which includes all services) in accordance with the contractual requirements provided in sec.11.1604. "Health care services" means any services, including medical, hospital, pharmaceutical, chiropractic, dental, etc. A primary HMO is ultimately responsible for regulatory requirements relating to its particular health care plan. Requirements of sec.11.1604 are necessary for the primary HMO to adequately manage and control provider HMOs within its network. An HMO acting as an ordinarily prudent business should already be in compliance with these requirements. Provider HMOs have been deleted from sec.11.1604(2)(E) and (G)(ii), relating to provider HMO contracts with physicians and providers, and from sec.11.1604(4) , relating to the requirement for a primary HMO to take action to correct non- compliance. After careful consideration, the contracts and subcontracts required under these provisions are available to TDI and TDH through regulation of provider HMOs. sec.11.1604(2)-File with TDI copy of form of ANHC or provider HMO agreement. A commenter suggests the department require an HMO to file the actual written agreement with an ANHC, rather than the form of the agreement. The department must be fully informed about the flow of dollars and liability from an HMO to an ANHC to regulate the financial solvency of the HMO. A commenter assumes information of a proprietary nature, including terms and conditions such as rates and coverage specifications of such agreements, will not be made public. Agency Response: The agency disagrees. Currently, the department requires HMOs to file the form of any contract between HMOs and physicians or providers. It is not necessary to change this requirement for ANHCs and provider HMOs. Summaries of amounts of dollar and liabilities flowing from an HMO to an ANHC are sufficient for regulatory purposes. The department will continue to evaluate what information it needs to regulate the financial solvency of the HMO and may consider rulemaking to require more information in the future if necessary. Because only the form of the contract is required to be filed, filing information such as specific amounts paid to physicians and providers is not required. If the actual contract is filed, the information in the contract is clearly open to the public under the HMO Act (Insurance Code, Article 20A.27). Any information filed which is claimed as confidential by law should be clearly identified as such to the department so that appropriate action can be taken as necessary under the law. sec.11.1604(2)(A)-90 days notice of termination of ANHC or provider HMO agreement. A commenter agrees that 90 days is the appropriate time period for notice of termination because the ANHC or provider HMO may be the key provider network walking away and having to be replaced. Another commenter suggests 30 days is a more appropriate time period than 90 days. Agency Response: The agency agrees that 90 days for notice of termination is an appropriate time period. Ninety days written notice is necessary for an HMO to arrange for continuity of adequate health care for enrollees, especially in cases in which the ANHC is providing global services to a large number of enrollees. sec.11.1604(2)(B)-Hold harmless provision. A few commenters recommend revising sec.11.1604(2)(B) concerning a required hold harmless provision to clarify that it applies to services covered by the HMO contract only. Agency Response: The agency agrees and has changed sec.11.1604(2)(B). sec.11.1604(2)(D)-Requires the ANHC or provider HMO to provide the primary HMO with data necessary for compliance with TDI and TDH. One commenter suggests adding the Texas Health Care Information Council to this provision because House Bill 1048 requires an HMO to annually submit health care data to the Texas Health Care Information Council. The Council may request data from an HMO that must be collected from the subcontracting ANHC. Agency Response: The agency agrees and has changed sec.11.1604(2)(D) to add the Texas Health Care Information Council. sec.11.1604(2)(E)-Requires ANHC and provider HMO to make available to primary HMO the ANHCs' or provider HMOs' contracts with physicians and providers A commenter suggests a change so as not to require the release of the financial arrangements between the ANHC and the physician which is confidential and proprietary information. Agency Response: The agency disagrees. Subparagraph (E) does not require that proprietary information be filed with the department. The subparagraph only requires that a copy be filed with the department of the form of the agreement between the primary HMO and the ANHC or provider HMO. sec.11.1604(2)(F)-Require ANHC to provide the primary HMO with evidence of financial solvency and financial ability to perform. A commenter requests clarification by defining "financial ability to perform" because it is subject to different interpretations. Agency Response: The agency disagrees. Subparagraph (F) clearly notes that obtaining a financial statement on the ANHC audited by CPAs is one method of performing due diligence. It is in the primary HMO's own best interest to ensure that its contracting ANHCs have the financial ability to perform the contracted functions. The provision provides flexibility to the primary HMO to perform a level of due diligence which a reasonably prudent business person would require under the circumstances. The primary HMO may impose its own objective guidelines for what it considers to be financial ability to perform. sec.11.1604(2)(G)-Requires ANHC or provider HMO to provide on a monthly basis data necessary to comply with TDI and TDH regulations. One commenter states sec.11.1604(2)(G)(iv-vii) constitutes "regulatory overkill". One commenter sees no need for sec.11.1604(2)(G)(vii) since financial solvency and financial ability are required. Another commenter requests clarification concerning whether the change to sec.11.1604(2)(G)(ii), which requires the form of the contracts instead of the actual contracts, means the department can at no time look at the actual contract with the ANHC. One commenter strongly supports the requirement that ANHCs report data to the HMO on a monthly basis, but need to clarify data elements for reporting purposes. This commenter suggests technical amendments as follows: (1) adding to sec.11.1604(2)(G) "Texas Health Care Information Council", an entity that requires reports with respect to services provided by an HMO; (2) adding to sec.11.1604(2)(G)(i) "or guaranteed service" after "number of primary HMO enrollees served because the term "served" implies only those who actually show up at the doctor or hospital for treatment; (3) deleting from sec.11. 1604(2)(G) "within the primary HMO delivery network" and after "providers" adding "who agree to provide service to enrollees of the primary HMO, and any material changes to these contracts" to clarify that this provision gives the HMO access to all contracts and subcontracts; and (4) adding to sec.11.1604(2) (G) "documentation of any" before "inquiries and investigation," adding "or any individual subcontracting physician or provider," after "HMO," adding "or enforcement" before agencies, and adding "and documentation of the final resolution of such an investigation" after "regulatory." Agency Response: The agency disagrees that sec.11.1604(2)(G)(iv-vii) constitutes "regulatory overkill". It is prudent business practice for HMOs to require all the data in sec.11.1604(2)(G)(iv)-(vii) to evaluate for its own business purposes and to comply with TDI requirements. To address concerns that HMOs may unfairly use information of a proprietary nature, the agency has changed sec.11.1604(2)(G)(ii) to require a copy of the "form of the contract" be filed with the primary HMO. Requiring the form of the contract instead of the actual contract does not mean the department cannot obtain access to the actual contracts. Pursuant to Insurance Code, Article 20A.17 (relating to Examinations) every physician and provider, including ANHCs and provider HMOs, with whom an HMO contracts must make available for examination its actual contracts and subcontracts with other physicians and providers. Furthermore, for audits conducted pursuant to the requirements of sec.11.1604(3), each ANHC and primary HMO with whom an HMO contracts must make available its actual contracts with other physicians and providers. Section sec.11.1604(2)(G)(iv) and (vii) have been changed to provide for a "summary of amounts paid" so that specific amounts claimed as proprietary information will not have to be provided. Upon considering the comments relating to required data elements, the agency agrees with most of the technical amendments suggested and has made changes or changes similar in substance to the changes requested by the commenter. sec.11.1604(3)-Requires an on-site audit of the ANHC or provider HMO no less frequently than semi-annually. A few commenters strongly support regular on-site audits. One commenter suggests an annual audit would be sufficient to verify compliance with all regulatory requirements of TDI and TDH. Another states that the term "audit" implies closing down systems and getting to some kind of subtotals which would be hard to do on a semi-annual basis. Agency Response: The agency agrees an annual audit can be sufficient to verify compliance with regulatory requirements of TDI and TDH as long as the primary HMO may conduct more frequent audits as necessary if material compliance issues or financial concerns are indicated. Any associated costs of such audits are a necessary cost of doing business in the manner contemplated by the rule. sec.11.1604(4)-Primary HMO must take immediate action to correct any failure by ANHC or provider HMO to comply. A commenter suggests adding immediate action should be taken "when the primary HMO becomes aware of a failure," and adding at the end of the sentence "delegated by the primary HMO to the provider HMO and that are necessary to ensure the primary HMO's compliance with these regulations." Another commenter is dissatisfied with the word "immediate" because HMOs are unclear how they are to act immediately. Agency Response: The agency has clarified the rule to provide for the primary HMO to take "prompt" action to correct any failure to comply with regulatory requirements relating to any matters delegated by the primary HMO to the ANHC. The magnitude of the action taken should correspond to the materiality of the non-compliance issue. The types of action a primary HMO would be expected to take will depend upon the facts of each situation, and may include, but not be limited to, an on-site audit, notifying the ANHC of a breach of contract and demanding action to correct the breach, or termination of the contract between the primary HMO and ANHC. The words "or provider HMO" have been deleted from this provision because the agency has statutory authority to take regulatory and enforcement action relating to provider HMOs. sec.11.1702. Requirements for Issuance of Certificate of Authority to ANHC. A few commenters desire clarification whether a certificate of authority is required under sec.11.1702 when an ANHC contracts for medical services only. Another commenter suggests that the agency change sec.11.1702 to be consistent with the change to sec.11.1604 by adding "and services ancillary to the practice of medicine." Agency Response: The agency agrees and has changed the section to be consistent with the Insurance Code, Article 21.52F sec.2 (relating to certificate of authority requirements and exceptions for ANHCs). Section 11. 1702 clarifies that a certificate of authority is not required under sec.11. 1702 when an ANHC contracts "to arrange for or provide only medical care, as defined in Insurance Code, Article 20A.02(k), on a prepaid basis." Article 21. 52F sec.2(b)(3) provides that Article 21.52F does not apply to an activity exempt from regulation under Insurance Code, Article 20A.26(f). Article 20A.26 in paragraph (f)(1)(A) provides that the HMO Act is not applicable to any physician, so long as that physician is only engaged in the delivery of care that is within the definition of medical care. Physician is defined in Insurance Code, Article 20A.02(m) to include an ANHC. Medical care is defined in Insurance Code, Article 20A.02(k) to mean "those services defined as practicing medicine under Section 1.03(8), Medical Practice Act (Texas Civil Statutes,Article 4495b)." Article 20A.26(f)(2) provides an exception to the exemption in Article 20A. 26(f)(1)(A). The agency interprets Article 20A.26(f)(2) to provide that any physician or provider who is not participating in an HMO delivery network, as defined in Insurance Code, Article 20A.02(u), and who employs or enters into a contractual arrangement with a provider or group of providers to furnish basic health care services, as defined in Article 20A.02(a), is subject to the provisions of the HMO Act and is required to obtain a certificate of authority from the commissioner. Paragraphs (3) through (9), Insurance Code, Article 20A. 26(f), do not relate to the issue addressed in this response regarding what services arranged for or provided by an ANHC to enrollees on a prepaid basis exempt the ANHC from having to obtain and maintain a certificate of authority issued by the department. Paragraphs (5) through (9), Insurance Code, Article 20A.26(f), relate to contracting and subcontracting arrangements within an HMO delivery network. For: Center for Public Policy Priorities and Office of Public Insurance Counsel. For with changes: Harris Methodist Health System, Haynes & Boone, Kaiser Permanente, M.D. Anderson Cancer Center, Scott and White Health Plan, Texas Alliance of Nonprofit Health Care, Texas HMO Association, Texas Osteopathic Medical Association, University of Texas System, University of Texas System Office of General Counsel, and University Physicians Group. Subchapter A. General Provisions 28 TAC sec.11.2 The amendments to the Administrative Code, Chapter 11, are adopted under the Insurance Code, Articles 20A.22; 20A.04(a)(13) and (b); 20A.05(b),(c) and (d); 20A.06 (as amended by Senate Bill 1407 enacted by the 74th Legislature, 1995); 20A.26 (as amended by Senate Bill 1407 enacted by the 74th Legislature, 1995); 21.52F (as amended by House Bill 3111 enacted by the 74th Legislature, 1995); 1.15; 20A.10; 20A.13; 20A.15; 20A.17 and 1.03A; and the Government Code sec.sec.2001.004 et seq (Administrative Procedure Act). The Insurance Code, Article 20A.22 provides that the department may promulgate such reasonable rules and regulations as are necessary and proper to carry out the provisions of the Texas HMO Act. Article 20A.04(a)(13) provides that in addition to items to be accompanied with each application for an HMO certificate of authority as set forth in Article 20A.04(a)(1)-(12), the commissioner may require other information to make determinations required by the HMO Act. Article 20A.04(b) provides the commissioner may promulgate such reasonable rules and regulations as it deems necessary to the proper administration of the HMO Act to require an HMO, subsequent to receiving its certificate of authority, to submit the modifications or amendments to the operations or documents submitted upon application for a certificate of authority to the commissioner, either for his approval or for information only, prior to the effectuation of the modification or amendment or to require the HMO to indicate the modifications to both the Texas Board of Health and the Commissioner of Insurance at the time of the next site visit or examination. Article 20A.05(b) sets forth the determinations the commissioner and the Texas Board of Health must make prior to granting a certificate of authority to an HMO. Article 20A.05(c) provides that the commissioner shall not issue the certificate of authority if the Texas Board of Health or the Commissioner of Insurance, or both, certify that the HMO's proposed plan of operation does not meet the requirements of Article 20A.05, and shall notify the applicant that an application is deficient and in what respects it is deficient. Article 20A.05(d) provides a certificate of authority shall continue in force as long as the person to whom it is issued meets the requirements of the HMO Act or until suspended or revoked by the commissioner or terminated at the request of the certificate holder. Article 20A.06(a)(3) (as amended by the enactment of the 74th Legislature, 1995, in Senate Bill 1407) authorizes HMOs to furnish or arrange for medical care only through other HMOs or physicians or groups of physicians who have independent contracts with the HMOs; and for the delivery of health care services only through other HMOs or providers or groups of providers who are under contract with or employed by the HMO or through other HMOs or physicians or providers who have contracted for health care services with those other HMOs or physicians or providers; except for the furnishing of or authorization for emergency services, services by referral, and services to be provided outside of the service area as approved by the commissioner. Article 20A.26 (as amended by enactment of the 74th Legislature, 1995, in Senate Bill 1407) provides exceptions to the HMO Act and describes certain contractual arrangements permitted by the HMO Act. Article 21.52F (as amended by enactment of the 74th Legislature, 1995, in House Bill 3111) establishes requirements for the issuance of a certificate of authority or provisional certificate of authority to, and powers and duties of, a nonprofit health corporation certified under the Medical Practice Act, Section 5.01(a); and provides for the commissioner to adopt rules to implement Article 21.52F. Article 1.15 authorizes the department to examine HMOs and other insurers. Article 20A.10 requires an HMO to file a report with the department on an annual basis including information relating to the performance of the HMO as is necessary to enable the commissioner to carry out his duties under the HMO Act. Article 20A.13 provides guidelines and requirements for protection of an HMO against insolvency. Article 20A.15 sets forth requirements for the licensure and regulation of HMO agents. Article 20A.17 provides for examination of the affairs of any HMO by the commissioner. Article 1.03A provides that the Commissioner of Insurance may adopt rules and regulations to execute the duties and functions of the Texas Department of Insurance only as authorized by statute. The Government Code, sec.sec.2001.004 et seq authorizes and requires each state agency to adopt rules of practice setting forth the nature and requirement of available procedures and prescribes the procedures for adoption of rules by a state administrative agency. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 11, 1996. TRD-9603420 Alicia M. Fechtel General Counsel and Chief Clerk Texas Department of Insurance Effective date: April 1, 1996 Proposal publication date: December 22, 1995 For further information, please call: (512) 463-6327 Subchapter C. Application for Certificate of Authority 28 TAC sec.11.207 The amendments to the Administrative Code, Chapter 11, are adopted under the Insurance Code, Articles 20A.22; 20A.04(a)(13) and (b); 20A.05(b),(c) and (d); 20A.06 (as amended by Senate Bill 1407 enacted by the 74th Legislature, 1995); 20A.26 (as amended by Senate Bill 1407 enacted by the 74th Legislature, 1995); 21.52F (as amended by House Bill 3111 enacted by the 74th Legislature, 1995); 1.15; 20A.10; 20A.13; 20A.15; 20A.17 and 1.03A; and the Government Code sec.sec.2001.004 et seq (Administrative Procedure Act). The Insurance Code, Article 20A.22 provides that the department may promulgate such reasonable rules and regulations as are necessary and proper to carry out the provisions of the Texas HMO Act. Article 20A.04(a)(13) provides that in addition to items to be accompanied with each application for an HMO certificate of authority as set forth in Article 20A.04(a)(1)-(12), the commissioner may require other information to make determinations required by the HMO Act. Article 20A.04(b) provides the commissioner may promulgate such reasonable rules and regulations as it deems necessary to the proper administration of the HMO Act to require an HMO, subsequent to receiving its certificate of authority, to submit the modifications or amendments to the operations or documents submitted upon application for a certificate of authority to the commissioner, either for his approval or for information only, prior to the effectuation of the modification or amendment or to require the HMO to indicate the modifications to both the Texas Board of Health and the Commissioner of Insurance at the time of the next site visit or examination. Article 20A.05(b) sets forth the determinations the commissioner and the Texas Board of Health must make prior to granting a certificate of authority to an HMO. Article 20A.05(c) provides that the commissioner shall not issue the certificate of authority if the Texas Board of Health or the Commissioner of Insurance, or both, certify that the HMO's proposed plan of operation does not meet the requirements of Article 20A.05, and shall notify the applicant that an application is deficient and in what respects it is deficient. Article 20A.05(d) provides a certificate of authority shall continue in force as long as the person to whom it is issued meets the requirements of the HMO Act or until suspended or revoked by the commissioner or terminated at the request of the certificate holder. Article 20A.06(a)(3) (as amended by the enactment of the 74th Legislature, 1995, in Senate Bill 1407) authorizes HMOs to furnish or arrange for medical care only through other HMOs or physicians or groups of physicians who have independent contracts with the HMOs; and for the delivery of health care services only through other HMOs or providers or groups of providers who are under contract with or employed by the HMO or through other HMOs or physicians or providers who have contracted for health care services with those other HMOs or physicians or providers; except for the furnishing of or authorization for emergency services, services by referral, and services to be provided outside of the service area as approved by the commissioner. Article 20A.26 (as amended by enactment of the 74th Legislature, 1995, in Senate Bill 1407) provides exceptions to the HMO Act and describes certain contractual arrangements permitted by the HMO Act. Article 21.52F (as amended by enactment of the 74th Legislature, 1995, in House Bill 3111) establishes requirements for the issuance of a certificate of authority or provisional certificate of authority to, and powers and duties of, a nonprofit health corporation certified under the Medical Practice Act, Section 5.01(a); and provides for the commissioner to adopt rules to implement Article 21.52F. Article 1.15 authorizes the department to examine HMOs and other insurers. Article 20A.10 requires an HMO to file a report with the department on an annual basis including information relating to the performance of the HMO as is necessary to enable the commissioner to carry out his duties under the HMO Act. Article 20A.13 provides guidelines and requirements for protection of an HMO against insolvency. Article 20A.15 sets forth requirements for the licensure and regulation of HMO agents. Article 20A.17 provides for examination of the affairs of any HMO by the commissioner. Article 1.03A provides that the Commissioner of Insurance may adopt rules and regulations to execute the duties and functions of the Texas Department of Insurance only as authorized by statute. The Government Code, sec.sec.2001.004 et seq authorizes and requires each state agency to adopt rules of practice setting forth the nature and requirement of available procedures and prescribes the procedures for adoption of rules by a state administrative agency. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 11, 1996. TRD-9603419 Alicia M. Fechtel General Counsel and Chief Clerk Texas Department of Insurance Effective date: April 1, 1996 Proposal publication date: December 22, 1995 For further information, please call: (512) 463-6327 Subchapter D. Regulatory Requirements for an HMO Subsequent to Issuance of a Certificate of Authority 28 TAC sec.11.301 The amendments to the Administrative Code, Chapter 11, are adopted under the Insurance Code, Articles 20A.22; 20A.04(a)(13) and (b); 20A.05(b),(c) and (d); 20A.06 (as amended by Senate Bill 1407 enacted by the 74th Legislature, 1995); 20A.26 (as amended by Senate Bill 1407 enacted by the 74th Legislature, 1995); 21.52F (as amended by House Bill 3111 enacted by the 74th Legislature, 1995); 1.15; 20A.10; 20A.13; 20A.15; 20A.17 and 1.03A; and the Government Code sec.sec.2001.004 et seq (Administrative Procedure Act). The Insurance Code, Article 20A.22 provides that the department may promulgate such reasonable rules and regulations as are necessary and proper to carry out the provisions of the Texas HMO Act. Article 20A.04(a)(13) provides that in addition to items to be accompanied with each application for an HMO certificate of authority as set forth in Article 20A.04(a)(1)-(12), the commissioner may require other information to make determinations required by the HMO Act. Article 20A.04(b) provides the commissioner may promulgate such reasonable rules and regulations as it deems necessary to the proper administration of the HMO Act to require an HMO, subsequent to receiving its certificate of authority, to submit the modifications or amendments to the operations or documents submitted upon application for a certificate of authority to the commissioner, either for his approval or for information only, prior to the effectuation of the modification or amendment or to require the HMO to indicate the modifications to both the Texas Board of Health and the Commissioner of Insurance at the time of the next site visit or examination. Article 20A.05(b) sets forth the determinations the commissioner and the Texas Board of Health must make prior to granting a certificate of authority to an HMO. Article 20A.05(c) provides that the commissioner shall not issue the certificate of authority if the Texas Board of Health or the Commissioner of Insurance, or both, certify that the HMO's proposed plan of operation does not meet the requirements of Article 20A.05, and shall notify the applicant that an application is deficient and in what respects it is deficient. Article 20A.05(d) provides a certificate of authority shall continue in force as long as the person to whom it is issued meets the requirements of the HMO Act or until suspended or revoked by the commissioner or terminated at the request of the certificate holder. Article 20A.06(a)(3) (as amended by the enactment of the 74th Legislature, 1995, in Senate Bill 1407) authorizes HMOs to furnish or arrange for medical care only through other HMOs or physicians or groups of physicians who have independent contracts with the HMOs; and for the delivery of health care services only through other HMOs or providers or groups of providers who are under contract with or employed by the HMO or through other HMOs or physicians or providers who have contracted for health care services with those other HMOs or physicians or providers; except for the furnishing of or authorization for emergency services, services by referral, and services to be provided outside of the service area as approved by the commissioner. Article 20A.26 (as amended by enactment of the 74th Legislature, 1995, in Senate Bill 1407) provides exceptions to the HMO Act and describes certain contractual arrangements permitted by the HMO Act. Article 21.52F (as amended by enactment of the 74th Legislature, 1995, in House Bill 3111) establishes requirements for the issuance of a certificate of authority or provisional certificate of authority to, and powers and duties of, a nonprofit health corporation certified under the Medical Practice Act, Section 5.01(a); and provides for the commissioner to adopt rules to implement Article 21.52F. Article 1.15 authorizes the department to examine HMOs and other insurers. Article 20A.10 requires an HMO to file a report with the department on an annual basis including information relating to the performance of the HMO as is necessary to enable the commissioner to carry out his duties under the HMO Act. Article 20A.13 provides guidelines and requirements for protection of an HMO against insolvency. Article 20A.15 sets forth requirements for the licensure and regulation of HMO agents. Article 20A.17 provides for examination of the affairs of any HMO by the commissioner. Article 1.03A provides that the Commissioner of Insurance may adopt rules and regulations to execute the duties and functions of the Texas Department of Insurance only as authorized by statute. The Government Code, sec.sec.2001.004 et seq authorizes and requires each state agency to adopt rules of practice setting forth the nature and requirement of available procedures and prescribes the procedures for adoption of rules by a state administrative agency. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 11, 1996. TRD-9603418 Alicia M. Fechtel General Counsel and Chief Clerk Texas Department of Insurance Effective date: April 1, 1996 Proposal publication date: December 22, 1995 For further information, please call: (512) 463-6327 Subchapter I. Financial Requirements 28 TAC sec.11.806 The amendments to the Administrative Code, Chapter 11, are adopted under the Insurance Code, Articles 20A.22; 20A.04(a)(13) and (b); 20A.05(b), (c) and (d); 20A.06 (as amended by Senate Bill 1407 enacted by the 74th Legislature, 1995); 20A.26 (as amended by Senate Bill 1407 enacted by the 74th Legislature, 1995); 21.52F (as amended by House Bill 3111 enacted by the 74th Legislature, 1995); 1.15; 20A.10; 20A.13; 20A.15; 20A.17 and 1.03A; and the Government Code sec.sec.2001.004 et seq (Administrative Procedure Act). The Insurance Code, Article 20A.22 provides that the department may promulgate such reasonable rules and regulations as are necessary and proper to carry out the provisions of the Texas HMO Act. Article 20A.04(a)(13) provides that in addition to items to be accompanied with each application for an HMO certificate of authority as set forth in Article 20A.04(a)(1)-(12), the commissioner may require other information to make determinations required by the HMO Act. Article 20A.04(b) provides the commissioner may promulgate such reasonable rules and regulations as it deems necessary to the proper administration of the HMO Act to require an HMO, subsequent to receiving its certificate of authority, to submit the modifications or amendments to the operations or documents submitted upon application for a certificate of authority to the commissioner, either for his approval or for information only, prior to the effectuation of the modification or amendment or to require the HMO to indicate the modifications to both the Texas Board of Health and the Commissioner of Insurance at the time of the next site visit or examination. Article 20A.05(b) sets forth the determinations the commissioner and the Texas Board of Health must make prior to granting a certificate of authority to an HMO. Article 20A.05(c) provides that the commissioner shall not issue the certificate of authority if the Texas Board of Health or the Commissioner of Insurance, or both, certify that the HMO's proposed plan of operation does not meet the requirements of Article 20A.05, and shall notify the applicant that an application is deficient and in what respects it is deficient. Article 20A.05(d) provides a certificate of authority shall continue in force as long as the person to whom it is issued meets the requirements of the HMO Act or until suspended or revoked by the commissioner or terminated at the request of the certificate holder. Article 20A.06(a)(3) (as amended by the enactment of the 74th Legislature, 1995, in Senate Bill 1407) authorizes HMOs to furnish or arrange for medical care only through other HMOs or physicians or groups of physicians who have independent contracts with the HMOs; and for the delivery of health care services only through other HMOs or providers or groups of providers who are under contract with or employed by the HMO or through other HMOs or physicians or providers who have contracted for health care services with those other HMOs or physicians or providers; except for the furnishing of or authorization for emergency services, services by referral, and services to be provided outside of the service area as approved by the commissioner. Article 20A.26 (as amended by enactment of the 74th Legislature, 1995, in Senate Bill 1407) provides exceptions to the HMO Act and describes certain contractual arrangements permitted by the HMO Act. Article 21.52F (as amended by enactment of the 74th Legislature, 1995, in House Bill 3111) establishes requirements for the issuance of a certificate of authority or provisional certificate of authority to, and powers and duties of, a nonprofit health corporation certified under the Medical Practice Act, Section 5.01(a); and provides for the commissioner to adopt rules to implement Article 21.52F. Article 1.15 authorizes the department to examine HMOs and other insurers. Article 20A.10 requires an HMO to file a report with the department on an annual basis including information relating to the performance of the HMO as is necessary to enable the commissioner to carry out his duties under the HMO Act. Article 20A.13 provides guidelines and requirements for protection of an HMO against insolvency. Article 20A.15 sets forth requirements for the licensure and regulation of HMO agents. Article 20A.17 provides for examination of the affairs of any HMO by the commissioner. Article 1.03A provides that the Commissioner of Insurance may adopt rules and regulations to execute the duties and functions of the Texas Department of Insurance only as authorized by statute. The Government Code, sec.sec.2001.004 et seq authorizes and requires each state agency to adopt rules of practice setting forth the nature and requirement of available procedures and prescribes the procedures for adoption of rules by a state administrative agency. sec.11.806. Liabilities. (a) Each HMO must establish and maintain records identifying and supporting each and every liability the HMO incurs. Each liability incurred by an HMO shall be reported on each financial statement filed with the department, including, as applicable, reports filed pursuant to sec.11.304 of this title. A liability shall be incurred from the date a service was performed, a product was delivered, or the title was transferred, or a contractual obligation entered into for an amount that is specified and unconditionally owed. Each HMO must segregate its liabilities in accordance to whether a liability is classified as "covered" or "uncovered." Agreements to loan money or to make future capital or surplus contributions do not, in themselves, cause liabilities to be covered. Any guarantee of future contributions to surplus which are directed and based on the payment of a debt will allow that debt to be reflected as a covered liability. A liability, for which provision is made other than by the assets of the HMO, may qualify as a covered liability if the amount owed: (1) is based on a provider contract with a hold-harmless clause as provided in sec.11.1102 of this title (relating to Hold-Harmless Clause); (2) is subordinated in writing to the uncovered health care liabilities of the HMO; or (3) is unconditionally guaranteed by a sponsoring organization which has a tangible net worth of at least $5 million in excess of all amounts that sponsoring organization has guaranteed. (b) Liabilities shall include, but are not limited to, the following: (1) gross premiums received in payment for all or any part of medical and other health care services to be provided by the HMO subsequent to that financial reporting period (unearned premiums); (2) the present amount due under any promissory note or other obligation evidencing amounts owed by the HMO without any adjustment for unrealized gains or losses due to an assumption of a loan or note payable at interest rates different from the prevailing rate at the time of assumption; (3) capital leases in an amount equal to the value of the admitted assets hypothecated by the lease or the present value of the total amounts owed under the remaining term of the lease in accordance with generally accepted accounting principles; in determining the present value of the lease payments, the rate of interest should be equivalent to the rate of interest on United States of America Treasury Notes as of December 31st of the preceding calendar year; and (4) incurred claim liabilities, including all liabilities and expenses relating to medical and health care services provided by HMO delivery network and non-network physicians and providers. (c) An HMO shall not record a credit on its balance sheet for any capitated risk or other risk-sharing arrangement with a network physician or provider relating to out-of-service area or emergency care provided by any non-network physician or provider. For purposes of this subsection, non-network physician or provider means a physician or provider who has not directly or indirectly contracted with an HMO or an HMO's network physicians or providers to provide medical or health care services to the HMO's enrollees. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 11, 1996. TRD-9603417 Alicia M. Fechtel General Counsel and Chief Clerk Texas Department of Insurance Effective date: April 1, 1996 Proposal publication date: December 22, 1995 For further information, please call: (512) 463-6327 Subchapter Q. Other Requirements 28 TAC sec.11.1604 The amendments to the Administrative Code, Chapter 11, are adopted under the Insurance Code, Articles 20A.22; 20A.04(a)(13) and (b); 20A.05(b), (c) and (d); 20A.06 (as amended by Senate Bill 1407 enacted by the 74th Legislature, 1995); 20A.26 (as amended by Senate Bill 1407 enacted by the 74th Legislature, 1995); 21.52F (as amended by House Bill 3111 enacted by the 74th Legislature, 1995); 1.15; 20A.10; 20A.13; 20A.15; 20A.17 and 1.03A; and the Government Code sec.sec.2001.004 et seq (Administrative Procedure Act). The Insurance Code, Article 20A.22 provides that the department may promulgate such reasonable rules and regulations as are necessary and proper to carry out the provisions of the Texas HMO Act. Article 20A.04(a)(13) provides that in addition to items to be accompanied with each application for an HMO certificate of authority as set forth in Article 20A.04(a)(1)-(12), the commissioner may require other information to make determinations required by the HMO Act. Article 20A.04(b) provides the commissioner may promulgate such reasonable rules and regulations as it deems necessary to the proper administration of the HMO Act to require an HMO, subsequent to receiving its certificate of authority, to submit the modifications or amendments to the operations or documents submitted upon application for a certificate of authority to the commissioner, either for his approval or for information only, prior to the effectuation of the modification or amendment or to require the HMO to indicate the modifications to both the Texas Board of Health and the Commissioner of Insurance at the time of the next site visit or examination. Article 20A.05(b) sets forth the determinations the commissioner and the Texas Board of Health must make prior to granting a certificate of authority to an HMO. Article 20A.05(c) provides that the commissioner shall not issue the certificate of authority if the Texas Board of Health or the Commissioner of Insurance, or both, certify that the HMO's proposed plan of operation does not meet the requirements of Article 20A.05, and shall notify the applicant that an application is deficient and in what respects it is deficient. Article 20A.05(d) provides a certificate of authority shall continue in force as long as the person to whom it is issued meets the requirements of the HMO Act or until suspended or revoked by the commissioner or terminated at the request of the certificate holder. Article 20A.06(a)(3) (as amended by the enactment of the 74th Legislature, 1995, in Senate Bill 1407) authorizes HMOs to furnish or arrange for medical care only through other HMOs or physicians or groups of physicians who have independent contracts with the HMOs; and for the delivery of health care services only through other HMOs or providers or groups of providers who are under contract with or employed by the HMO or through other HMOs or physicians or providers who have contracted for health care services with those other HMOs or physicians or providers; except for the furnishing of or authorization for emergency services, services by referral, and services to be provided outside of the service area as approved by the commissioner. Article 20A.26 (as amended by enactment of the 74th Legislature, 1995, in Senate Bill 1407) provides exceptions to the HMO Act and describes certain contractual arrangements permitted by the HMO Act. Article 21.52F (as amended by enactment of the 74th Legislature, 1995, in House Bill 3111) establishes requirements for the issuance of a certificate of authority or provisional certificate of authority to, and powers and duties of, a nonprofit health corporation certified under the Medical Practice Act, Section 5.01(a); and provides for the commissioner to adopt rules to implement Article 21.52F. Article 1.15 authorizes the department to examine HMOs and other insurers. Article 20A.10 requires an HMO to file a report with the department on an annual basis including information relating to the performance of the HMO as is necessary to enable the commissioner to carry out his duties under the HMO Act. Article 20A.13 provides guidelines and requirements for protection of an HMO against insolvency. Article 20A.15 sets forth requirements for the licensure and regulation of HMO agents. Article 20A.17 provides for examination of the affairs of any HMO by the commissioner. Article 1.03A provides that the Commissioner of Insurance may adopt rules and regulations to execute the duties and functions of the Texas Department of Insurance only as authorized by statute. The Government Code, sec.sec.2001.004 et seq authorizes and requires each state agency to adopt rules of practice setting forth the nature and requirement of available procedures and prescribes the procedures for adoption of rules by a state administrative agency. sec.11.1604. Requirements for Certain Contracts between Primary HMOs and ANHCs and Primary HMOs and Provider HMOs. A primary HMO that enters into a contract with an ANHC in which the ANHC agrees to arrange for or provide health care services, other than medical care or services ancillary to the practice of medicine, or a provider HMO in which the provider HMO agrees to arrange for or provide health care services on a risk-sharing or capitated risk arrangement on behalf of the primary HMO as part of the primary HMO delivery network shall: (1) submit to the Texas Department of Insurance a monitoring plan setting out: (A) how the primary HMO will ensure that the ANHC or provider HMO has an effective administrative system for providing timely and accurate reimbursement to all physicians and providers under contract with the ANHC or provider HMO; and (B) how the primary HMO will ensure that all HMO functions which are delegated or assigned under contract with the ANHC or provider HMO are consistent with full compliance by the primary HMO with all regulatory requirements of the Texas Department of Insurance and the Texas Department of Health; (2) file with the Texas Department of Insurance, pursuant to sec.11.301(5) of this title (relating to Filings for Information), a copy of the form of the written agreement with an ANHC or provider HMO that: (A) requires that the agreement cannot be terminated by the ANHC or provider HMO without 90 days written notice; (B) contains a hold harmless provision providing that the ANHC or provider HMO and its contracted physicians and providers are prohibited from billing or attempting to collect from HMO members (except for authorized co-payments and deductibles) for covered services under any circumstance, including the insolvency of the primary HMO, ANHC or provider HMO; (C) contains a provision stating that nothing in the primary HMO-ANHC or primary HMO-provider HMO contract shall be construed to in any way limit the HMO's authority or responsibility to comply with all regulatory requirements of the Texas Department of Insurance and the Texas Department of Health; (D) includes the ANHC's or provider HMO's acknowledgment and agreement that: (i) the primary HMO is required to establish, operate and maintain a health care delivery system, quality assurance system, provider credentialing system and other systems and programs meeting Texas Department of Insurance, Texas Health Care Council, and Texas Department of Health standards and is directly accountable for compliance with such standards; (ii) the role of the ANHC or provider HMO in contracting with the primary HMO is limited to implementing certain systems of the primary HMO, utilizing standards approved by the primary HMO and subject to the primary HMO's oversight and monitoring of the ANHC's or provider HMO's performance; and (iii) the primary HMO may take whatever action is deemed necessary by the primary HMO, Texas Department of Insurance or Texas Department of Health to assure that all HMO systems and functions which are delegated or assigned under the contract with the ANHC or provider HMO are in full compliance with all regulatory requirements of the Texas Department of Insurance and the Texas Department of Health; (E) requires the ANHC to make available to the primary HMO the ANHC's contracts with physicians and providers so as to ensure compliance with contractual requirements set out in subparagraph (B) and (C) of this paragraph; and (F) requires the ANHC to provide the primary HMO with evidence of both financial solvency and financial ability to perform, such as a certified financial audit of the ANHC conducted by independent certified public accountants, utilizing generally accepted accounting and auditing principles. (G) requires the ANHC or provider HMO to provide the primary HMO on at least a monthly basis, in a usable form necessary for audit purposes, the data necessary for the HMO to comply with the Texas Department of Insurance, Texas Health Care Council, and Texas Department of Health reporting requirements with respect to any services provided pursuant to the HMO-ANHC or HMO -provider HMO agreement, including the following data: (i) number of primary HMO enrollees served or assigned to the ANHC or primary HMO to receive services (including number added and terminated since the last reporting period); (ii) form of the contracts and subcontracts between the ANHC and physicians and providers who will be providing services to enrollees of the primary HMO and any material changes to the contracts and subcontracts; (iii) co-payments received by the ANHC or provider HMO; (iv) summary of the amounts paid by the ANHC or provider HMO to physicians and providers; (v) methods by which physicians and providers were paid by the ANHC or provider HMO (capitation, fee-for-services, other risk-sharing arrangements); (vi) utilization data; (vii) summary of the amounts paid by the ANHC or provider HMO for administrative services relating to the primary HMOs; (viii) time period that claims and debts related to claims owed by the ANHC or provider HMO have been pending; (ix) information required for the primary HMO to be able to file claims for reinsurance, coordination of benefits and subrogation; (x) provider-enrollee satisfaction data; (xi) complaint data; (xii) documentation of any inquiries and investigation of the ANHC or provider HMO, or any individual subcontracting physician or provider, made by regulatory agencies, and documentation of the final resolution of such an investigation; and (xiii) any other data necessary to assure proper monitoring and control of the primary HMO delivery network by the primary HMO; (3) conduct an on-site audit of the ANHC or provider HMO no less frequently than annually, or more frequently upon indication of material non-compliance, to obtain information necessary to verify compliance with all regulatory requirements of the Texas Department of Insurance and the Texas Department of Health. Written documentation of each audit required by this paragraph shall be made available to the Texas Department of Insurance or Texas Department of Health upon request; and (4) take prompt action to correct any failure by the ANHC to comply with regulatory requirements of the Texas Department of Insurance or Texas Department of Health relating to any matters delegated by the primary HMO to the ANHC and necessary to ensure the primary HMO's compliance with the regulatory requirements. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 11, 1996. TRD-9603415 Alicia M. Fechtel General Counsel and Chief Clerk Texas Department of Insurance Effective date: April 1, 1996 Proposal publication date: December 22, 1995 For further information, please call: (512) 463-6327 Subchapter R. Approved Nonprofit Health Corporations 28 TAC sec.sec.11.1702-11.1704 The amendments to the Administrative Code, Chapter 11, are adopted under the Insurance Code, Articles 20A.22; 20A.04(a)(13) and (b); 20A.05(b), (c) and (d); 20A.06 (as amended by Senate Bill 1407 enacted by the 74th Legislature, 1995); 20A.26 (as amended by Senate Bill 1407 enacted by the 74th Legislature, 1995); 21.52F (as amended by House Bill 3111 enacted by the 74th Legislature, 1995); 1.15; 20A.10; 20A.13; 20A.15; 20A.17 and 1.03A; and the Government Code sec.sec.2001.004 et seq (Administrative Procedure Act). The Insurance Code, Article 20A.22 provides that the department may promulgate such reasonable rules and regulations as are necessary and proper to carry out the provisions of the Texas HMO Act. Article 20A.04(a)(13) provides that in addition to items to be accompanied with each application for an HMO certificate of authority as set forth in Article 20A.04(a)(1)-(12), the commissioner may require other information to make determinations required by the HMO Act. Article 20A.04(b) provides the commissioner may promulgate such reasonable rules and regulations as it deems necessary to the proper administration of the HMO Act to require an HMO, subsequent to receiving its certificate of authority, to submit the modifications or amendments to the operations or documents submitted upon application for a certificate of authority to the commissioner, either for his approval or for information only, prior to the effectuation of the modification or amendment or to require the HMO to indicate the modifications to both the Texas Board of Health and the Commissioner of Insurance at the time of the next site visit or examination. Article 20A.05(b) sets forth the determinations the commissioner and the Texas Board of Health must make prior to granting a certificate of authority to an HMO. Article 20A.05(c) provides that the commissioner shall not issue the certificate of authority if the Texas Board of Health or the Commissioner of Insurance, or both, certify that the HMO's proposed plan of operation does not meet the requirements of Article 20A.05, and shall notify the applicant that an application is deficient and in what respects it is deficient. Article 20A.05(d) provides a certificate of authority shall continue in force as long as the person to whom it is issued meets the requirements of the HMO Act or until suspended or revoked by the commissioner or terminated at the request of the certificate holder. Article 20A.06(a)(3) (as amended by the enactment of the 74th Legislature, 1995, in Senate Bill 1407) authorizes HMOs to furnish or arrange for medical care only through other HMOs or physicians or groups of physicians who have independent contracts with the HMOs; and for the delivery of health care services only through other HMOs or providers or groups of providers who are under contract with or employed by the HMO or through other HMOs or physicians or providers who have contracted for health care services with those other HMOs or physicians or providers; except for the furnishing of or authorization for emergency services, services by referral, and services to be provided outside of the service area as approved by the commissioner. Article 20A.26 (as amended by enactment of the 74th Legislature, 1995, in Senate Bill 1407) provides exceptions to the HMO Act and describes certain contractual arrangements permitted by the HMO Act. Article 21.52F (as amended by enactment of the 74th Legislature, 1995, in House Bill 3111) establishes requirements for the issuance of a certificate of authority or provisional certificate of authority to, and powers and duties of, a nonprofit health corporation certified under the Medical Practice Act, Section 5.01(a); and provides for the commissioner to adopt rules to implement Article 21.52F. Article 1.15 authorizes the department to examine HMOs and other insurers. Article 20A.10 requires an HMO to file a report with the department on an annual basis including information relating to the performance of the HMO as is necessary to enable the commissioner to carry out his duties under the HMO Act. Article 20A.13 provides guidelines and requirements for protection of an HMO against insolvency. Article 20A.15 sets forth requirements for the licensure and regulation of HMO agents. Article 20A.17 provides for examination of the affairs of any HMO by the commissioner. Article 1.03A provides that the Commissioner of Insurance may adopt rules and regulations to execute the duties and functions of the Texas Department of Insurance only as authorized by statute. The Government Code, sec.sec.2001.004 et seq authorizes and requires each state agency to adopt rules of practice setting forth the nature and requirement of available procedures and prescribes the procedures for adoption of rules by a state administrative agency. sec.11.1702. Requirements for Issuance of Certificate of Authority to ANHC. (a) Prior to obtaining a certificate of authority under the Insurance Code, Article 21.52F (relating to Certification of Certain Nonprofit Health Corporations), an applicant ANHC must: (1) comply with each requirement for the issuance of a certificate of authority imposed on an HMO under the Insurance Code, Chapter 20A; this title, Chapter 11; and applicable insurance laws and regulations of this state; and (2) demonstrate by appropriate documentation that the applicant ANHC has established and maintains accreditation by: (A) the National Committee on Quality Assurance; or (B) the Joint Commission on Accreditation of Health Care Organizations - network accreditation program. (b) The commissioner shall grant a provisional certificate of authority to an applicant ANHC under the Insurance Code, Article 21.52F sec.4(b), if: (1) the applicant ANHC complies with each requirement for the issuance of a certificate of authority imposed on an HMO under the Insurance Code, Chapter 20A; this title, Chapter 11; and applicable insurance laws and regulations of this state; (2) the applicant ANHC demonstrates that it has applied for accreditation; (3) the applicant ANHC is diligently pursuing accreditation as determined by the commissioner; and (4) the accrediting organization has not denied the accreditation. (c) An ANHC with a certificate of authority or a provisional certificate of authority must comply with all the appropriate requirements that an HMO must comply with under the Insurance Code, Chapter 20A; this title, Chapter 11; and applicable insurance laws and regulations of this state in order to maintain a certificate of authority. (d) This subchapter does not apply to an activity exempt from regulation under Insurance Code, Articles 21.52F(2) and 20A.26(f), including an ANHC that contracts to arrange for or provide only medical care as defined in Insurance Code, Article 20A. 02(k). This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 11, 1996. TRD-9603414 Alicia M. Fechtel General Counsel and Chief Clerk Texas Department of Insurance Effective date: April 1, 1996 Proposal publication date: December 22, 1995 For further information, please call: (512) 463-6327 TITLE 34. PUBLIC FINANCE Part I. Comptroller of Public Accounts Chapter 3. Tax Administration Subchapter K. Hotel Occupancy Tax 34 TAC sec.3.163 The Comptroller of Public Accounts adopts an amendment to sec.3.163, concerning exemptions, with changes to the proposed text as published in the December 12, 1995, issue of the Texas Register (20 TexReg 10572). House Bill 2129, 74th Legislature, 1995, eliminated the hotel occupancy tax exemption for the State of Texas, state employees not provided a special exception under the General Appropriation Act and federal employees. The amendment deletes these groups from the hotel tax exemptions and describes the hotel tax exemption photo identification for state employees that retain the tax exemption. Comments were received from Marriott International, Inc., Hilton San Antonio Airport And Conference Center, and Texas Hotel And Motel Association recommending additional language to subsection (e) to further clarify direct payment to a hotel by the federal government. The comptroller agreed with the comments and adopts the rule with changes to subsection (e) adding credit cards issued in only the name of the federal government and the VISA I.M.P.A.C. credit card to the examples of direct payment. Nonsubstantive grammatical corrections are made in the rule title and subsection (c). The amendment is adopted under the Tax Code, sec.111.002, which provides the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of the Tax Code, Title 2. The amendment implements Tax Code, sec.156.103. sec.3.163. Exemptions. (a) This rule deals with exemptions from the state hotel occupancy tax. For information on city and county hotel taxes, contact the affected city or county. (b) The YMCA, YWCA, and private clubs are exempt from the collection of tax for room rental to members. (c) Religious, charitable, and educational organizations as defined in sec. 3.161 of this title (relating to Definitions) and their employees, including college and university personnel, traveling on official business of the organization are exempt from payment of hotel occupancy tax. (d) State officials, judicial officers, heads of state agencies, the Executive Director of the Legislative Council, the Secretary of the Senate, state legislators, legislative employees, members of state boards and commissions, and designated state employees of the State of Texas who present a Hotel Tax Exemption Photo Identification Card when traveling on official state business are exempt from the hotel occupancy tax. State agency, institution, board, or commission employees who have not been issued a Hotel Tax Exemption Photo Identification Card must pay the hotel occupancy tax. The hotel tax paid by the state or reimbursed to a state employee may be refunded as provided in sec.3.166. For the purpose of claiming an exemption, a Hotel Tax Exemption Photo Identification Card includes: (1) any photo identification card issued by a state agency that states "EXEMPT FROM HOTEL OCCUPANCY TAX, under Tax Code, sec.156.103(d)", or similar wording; or (2) a Hotel Tax Exemption Card that states "when presented with a photo identification card issued by a Texas agency, the holder of this card is exempt from state, municipal, and county hotel occupancy tax, Tax Code, sec.156.103(d)", or similar wording. (e) The United States government when paying the hotel directly for the price of a room is exempt from the hotel occupancy tax. An example of the federal government paying the hotel directly would include, but would not be limited to, the use of a United States government check, United States government purchase order, United States government credit card issued to the federal government in only the federal government's name, a VISA I.M.P.A.C. credit card issued to a federal employee, or other method of directly billing the federal government. A federal employee when paying the hotel is not exempt. An example of the federal employee paying the hotel would include, but would not be limited to, the use of cash, personal check, or any credit card, other than a VISA I.M.P.A.C. card, where the credit card is embossed with the employee's name. (f) Diplomatic personnel of a foreign government who present an appropriate Tax Exemption Card issued by the United States Department of State are exempt from the tax. (g) Where an exemption applies, the organization or individual claiming it must present an exemption certificate to the hotel. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 7, 1996. TRD-9603249 Martin Cherry Chief, General Law Comptroller of Public Accounts Effective date: March 28, 1996 Proposal publication date: December 12, 1995 For further information, please call: (512) 463-6327 34 TAC sec.3.164 The Comptroller of Public Accounts adopts an amendment to sec.3.164, concerning exemption certificate, without changes to the proposed text as published in the December 12, 1995, issue of the Texas Register (20 TexReg 10573). The State of Texas, state employees not provided a special exception under the General Appropriations Act and employees of the United States government paying the hotel directly lost the hotel tax exemption as a result of House Bill 2129, 74th Legislature, 1995. The amendment to this section removes these exemptions from the Hotel Occupancy Tax Exemption Certificate. No comments were received regarding adoption of the amendment. The amendment is adopted under the Tax Code, sec.111.002, which provides the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of the Tax Code, Title 2. The amendment implements Tax Code, sec.sec.156.103, 351.006, and 352.007. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 7, 1996. TRD-9603250 Martin Cherry Chief, General Law Comptroller of Public Accounts Effective date: March 28, 1996 Proposal publication date: December 12, 1995 For further information, please call: (512) 463-6327 34 TAC sec.3.166 The Comptroller of Public Accounts adopts new sec.3.166, concerning refund of hotel occupancy tax, with changes to the proposed text as published in the December 12, 1995, issue of the Texas Register (20 TexReg 10573). As a result of House Bill 2129, 74th Legislature, 1995, the State of Texas and most state employees are required to pay the hotel occupancy tax to the hotel. The state agency paying the tax or reimbursing an employee for tax paid may request a refund of hotel taxes from the state, city, or county. The comptroller is required to prescribe the form and information required to claim a refund of municipal and county hotel taxes. Comments were received from Marriott International, Inc., Hilton San Antonio Airport And Conference Center, and Texas Hotel And Motel Association recommending additional language to subsection (b)(2) to further clarify direct payment to a hotel by the federal government. The comptroller agreed with the comments and adopts the rule with changes to subsection (b)(2) adding credit cards issued in only the name of the federal government and the VISA I.M.P.A.C. credit card to the examples of direct payment. Nonsubstantive grammatical corrections are made in the rule title and subsection (a)(2). The new section is adopted under the Tax Code, sec.111.002, which provides the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of the Tax Code, Title 2. The new section implements Tax Code, sec.sec.156.103, 156.154, 351.006, and 352. 007. sec.3.166. Refund of Hotel Occupancy Tax. (a) Definitions. (1) State Agency. An agency, institution, board, or commission of the State of Texas other than an institution of higher education as defined in Education Code, sec.61.003. (2) Federal Government. Any department, board, bureau, agency, corporation, or commission created or wholly owned by the United States government. (b) Refunds. (1) A state agency may request a refund for each calendar quarter for the state, municipal, and county hotel tax paid directly to a hotel or the amount of state, municipal, and county hotel tax reimbursed to a state employee on a state travel voucher. (2) A federal government employee paying the hotel occupancy tax from their own funds directly to the hotel and later reimbursed by the United States government is not entitled to a refund. The United States government when paying the hotel directly for the price of a room is exempt from the state, municipal and county hotel occupancy taxes. An example of the federal government paying the hotel directly would include, but would not be limited to, the use of a United States government check, United States government purchase order, United States government credit card issued to the federal government in only the federal government's name, a VISA I.M.P.A.C. credit card issued to a federal employee, or other method of directly billing the federal government. (c) Time limitation. A state agency may apply for a refund of state hotel tax no later than two years after the end of the fiscal year in which the travel occurred as provided by Sections 1.16 and 8.06, State of Texas Travel Allowance Guide. A state agency may apply for a refund of municipal or county hotel occupancy tax for each calendar quarter according to the local city or county ordinance. In the absence of a local ordinance, the same time limitation that applies to the refund of state hotel tax will apply to municipal and county taxes. (d) Documentation required. (1) Documentation must be maintained to substantiate the claim, including a copy of the hotel folio, billing statement, invoice, or other document, that contains the following information: (A) name of the hotel, (B) location address of hotel, (C) name of city hotel is located, (D) name of county hotel is located, (E) date(s) of lodging, (F) amount of state, municipal, and county hotel tax paid separately stated, (G) method of payment (travel voucher reimbursement, state credit card, state purchase order, direct billing, other), and (H) name of employee, if tax reimbursed on travel voucher. (2) A municipality or county may, by local ordinance, require additional documentation or require documentation be submitted with a claim for refund of local tax. (e) Separate refund claim required. A separate refund claim form must be filed with each municipality or county. (f) Form. Each claim for refund for state hotel occupancy tax must be filed on a form furnished by the comptroller. The municipal and county hotel occupancy tax refund claim form must be substantially in the form set out as follows. Figure: 34 TAC 3.166(f) This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 7, 1996. TRD-9603251 Martin Cherry Chief, General Law Comptroller of Public Accounts Effective date: March 28, 1996 Proposal publication date: December 12, 1995 For further information, please call: (512) 463-6327 TITLE 37. PUBLIC SAFETY AND CORRECTIONS Part I. Texas Department of Public Safety Chapter 3. Traffic Law Enforcement Traffic Supervision 37 TAC sec.3.59, sec.3.62 The Texas Department of Public Safety adopts an amendment to sec.3.59 and new sec.3.62, concerning traffic supervision, without changes to the proposed text as published in the January 9, 1996, issue of the Texas Register (21 TexReg 253). The justification for the sections will be to promote the safe transportation of hazardous materials and to regulate the operations of commercial motor vehicles in the state through the adoption of the Federal Motor Carrier Safety Regulations for intrastate commerce, the establishment of the Safety Audit Program, the assessment of administrative penalties, the issuance of safety ratings and explanation of the requirements for municipal peace officer training and certification to enforce the regulations. The amendment and new section are necessary to implement the provisions of Texas Civil Statutes, Article 6675d as adopted in Senate Bill 3, 74th Legislature, 1995, effective September 1, 1995 (Chapter 705, Acts of 74th Legislature, 1995), which provides the director with the authority to adopt by reference Parts 382, 385, 386, 390-393, and 395-397 of Title 49, Code of Federal Regulations (Federal Motor Carrier Safety Regulations). A summary of the comments received and the department's response to the comments follows. No groups or associations offered comment on the amendment as proposed. A public hearing was held on March 6, 1996, and no comments were submitted at that time. Individual written comment was received. No changes were made as a result of comment. COMMENT: A comment was received asking whether all intrastate Commercial Driver License holders will be required to meet the medical qualification requirements as outlined in Title 49, Code of Federal Regulations 391, as adopted, and whether those Commercial Driver License holders would be required to obtain a medical certification card. An explanation of who would be authorized to issue the medical card was also requested. RESPONSE: Drivers of vehicles specified in Subpart (c)(1)(A-D) of Title 49, Code of Federal Regulations 391, are required to meet the medical requirements if they were not commercial motor vehicle drivers on or before August 28, 1989. This requirement is based on the size of vehicle being operated instead of the requirement to have a Commercial Driver License. A driver required to meet the medical standards would be required to be in possession of a medical card.. A medical card could be issued by any licensed medical examiner. A licensed medical examiner is defined in Title 49, Code of Federal Regulation 390.5 as a person who is licensed, certified, and/or registered, in accordance with applicable state laws and regulations, to perform physical examinations. The term includes, but is not limited to, doctors of medicine, doctors of osteopathy, physician assistants, advanced practice nurses, and doctors of chiropractic. COMMENT: A comment was received asking how intrastate Commercial Driver License holders who are not required to obtain a medical certification card are to meet the medical qualification requirements of Title 49, Code of Federal Regulation 391. RESPONSE: These drivers are exempted ("grand-fathered") from meeting the medical requirements. COMMENT: A comment was received asking who at the state level and local level will be responsible for policing the drivers' compliance with the medical qualification requirements outlined in Title 49, Code of Federal Regulation 391. RESPONSE: The Department of Public Safety is the agency primarily responsible for regulating compliance with the medical qualification requirements. This responsibility is accomplished through roadside inspections in which the department's License & Weight troopers inspect driver and vehicle compliance with the regulations and also through compliance audits wherein troopers conduct an audit at a motor carrier's principal place of business to check driver qualification files and other documents to verify compliance with the regulations. The regulations also place responsibility on the motor carrier to ensure that their drivers are in compliance with the regulations. The amendment and new section are proposed pursuant to Texas Civil Statutes, Article 6675d, Texas Transportation Code, Chapter 522, and Texas Government Code , sec.411.006(4), which provides the director of the Texas Department of Public Safety with the authority to establish rules for the conduct of the work of the Texas Department of Public Safety, and which authorizes the director to adopt rules regulating the safe operation of commercial motor vehicles. This agency hereby certifies that the adoptions have been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 7, 1996. TRD-9603338 James R. Wilson Director Texas Department of Public Safety Effective date: March 29, 1996 Proposal publication date: January 9, 1996 For further information, please call: (512) 424-2890 Part III. Texas Youth Commission Chapter 88. Special Management Programs 37 TAC sec.88.1 The Texas Youth Commission (TYC) adopts the repeal of sec.88.1, concerning special management and treatment program for assaultive youth, without changes to the proposed text as published in the January 26, 1996, issue of the Texas Register (21 TexReg 652). The justification for the repeal is to replace the repealed section with a new section which encourages more efficient agency operation. The repeal will allow for the rule to be replaced by a new section to allow for changes in rules of operation which are more consistent with legislative intent and agency mission regarding committed juvenile delinquents. No comments were received regarding adoption of the repeal. The repeal is adopted under the Human Resources Code, sec.61.034, which provides the Texas Youth Commission with the authority to make rules appropriate to the accomplishment of its functions. This agency hereby certifies that the adoption have been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 4, 1996. TRD-9603061 Steve Robinson Executive Director Texas Youth Commission Effective date: March 25, 1996 Proposal publication date: January 26, 1996 For further information, please call: (512) 483-5244 The Texas Youth Commission (TYC) adopts new sec.88.1, concerning special management and treatment program for assaultive youth, with changes to the proposed text as published in the January 26, 1996, issue of the Texas Register (21 TexReg 652). Changes to the proposed text consist of the addition of purpose and applicability clauses, and a central office approval for a second extension in the special management program. The justification for the new section is more efficient agency operation. The new rule will provide guidelines for TYC staff to determine when a TYC youth is eligible for the special management and treatment program. p>>No comments were received regarding adoption of the new rule. The new rule is adopted under the Human Resources Code, sec.61.075, which provides the Texas Youth Commission with the authority to order confinement under conditions it believes best designed for the child's welfare and the interests of the public. sec.88.1. Special Management and Treatment Program for Assaultive Youth. (a) Purpose. This purpose of this rule is to provide: (1) criteria for removing from the general population, youth who are assaultive or self destructive and are considered high risk for continuing the behavior. (2) for that youth a highly structured program with a strong counseling component and a system of graduated reintegration into the general population. (b) Applicability. This rule does not apply to short term admissions to confinement in a security unit. See GOP.67.15, sec.91. 65 of this title (relating to Security Unit). (c) Program Admission. (1) Youth considered for the special management and treatment program must meet admission criteria. Youth who instigate or engage in one or more of the following behaviors are eligible for the program. (A) Assault on TYC staff. (B) One or more serious assaults on a student resulting in bodily injury. (C) Willful destruction of property. (D) Escape with exacerbating circumstances, e.g., aggravated assault, arson, or possession of a weapon. (E) Serious self-abuse or engage in suicidal behavior. (2) A fact finding level II hearing shall be held to determine whether a youth meets behavioral criteria. See GOP. 65.03, sec.91.35 of this title (relating to Level II Hearing Procedure). (3) A mental health professional must recommend program admission based on a determination that the following criteria has been met. (A) The youth poses a continuing risk for assaultive behavior, injury to self and/or destruction of property, and (B) less restrictive intervention is unlikely to manage the risk. (d) Program completion. (1) An individualized treatment program must be developed for each youth. The plan will consist of performance objectives which the youth must meet in order to be returned to the general population. The plan will be explained to the youth and he/she signs the plan in acknowledgment. (2) A youth shall be released when progress reviews indicate that performance objectives for each phase have been met or when a youth has been in the program for 28 days, whichever occurs first unless an extension has been approved. (3) A youth who has once successfully completed the program shall not be returned unless admission criteria has been met for a different incident. (e) Program Extension. (1) An extension may be approved if the following criteria has been met. (A) progress reviews indicate that the youth has not met specific performance objectives for each phase of the special management and treatment program; and (B) the treatment plan for the youth has been reviewed by the director of psychology and the determination made that the plan has been implemented as written; and (C) the treatment plan has been modified as needed. (2) Approval for a second extension must obtained from the central office rehabilitation department. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 4, 1996. TRD-9603062 Steve Robinson Executive Director Texas Youth Commission Effective date: March 25, 1996 Proposal publication date: January 26, 1996 For further information, please call: (512) 483-5244 Chapter 93. General Provisions Death of a Youth 37 TAC sec.93.1 The Texas Youth Commission (TYC) adopts the repeal of sec.93.1, concerning death of a youth, without changes to the proposed text as published in the January 26, 1996, issue of the Texas Register (21 TexReg 652). The justification for the repeal is to replace the repealed section with a new section which encourages more efficient agency operation. The repeal will allow for the section to be replaced by a new section to allow for changes in rules of operation which are more consistent with legislative intent and agency mission regarding committed juvenile delinquents. No comments were received regarding adoption of the repeal. The repeal is adopted under the Human Resources Code, sec.61.034, which provides the Texas Youth Commission with the authority to make rules appropriate to the accomplishment of its functions. This agency hereby certifies that the adoption have been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 4, 1996. TRD-9603063 Steve Robinson Executive Director Texas Youth Commission Effective date: March 25, 1996 Proposal publication date: January 16, 1996 For further information, please call: (512) 483-5244 The Texas Youth Commission (TYC) adopts new sec.93.1, concerning death of a youth, without changes to the proposed text as published in the January 26, 1996, issue of the Texas Register (21 TexReg 653). The justification for the new section is more efficient agency operation. The new rule will provide guidelines for responding to the death of a TYC youth. No comments were received regarding adoption of the new rule. The new rule is adopted under the Human Resources Code, sec.61.034, which provides the Texas Youth Commission with the authority to make rules appropriate to the accomplishment of its functions. This agency hereby certifies that the adoption have been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 4, 1996. TRD-9603064 Steve Robinson Executive Director Texas Youth Commission Effective date: March 25, 1996 Proposal publication date: January 16, 1996 For further information, please call: (512) 483-5244 Transportation of Youth 37 TAC sec.93.31 The Texas Youth Commission (TYC) adopts the repeal of sec.93.31, concerning transportation of youth, without changes to the proposed text as published in the January 26, 1996, issue of the Texas Register (21 TexReg 653). The justification for the repeal of the section is to replace the repealed section with a new section which encourages more efficient agency operation. The repeal will allow for the section to be replaced by a new section to allow for changes in rules of operation which are more consistent with legislative intent and agency mission regarding committed juvenile delinquents. No comments were received regarding adoption of the repeal. The repeal is adopted under the Human Resources Code, sec.61.034, which provides the Texas Youth Commission with the authority to make rules appropriate to the accomplishment of its functions. This agency hereby certifies that the adoption have been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 4, 1996. TRD-9603059 Steve Robinson Executive Director Texas Youth Commission Effective date: March 25, 1996 Proposal publication date: January 26, 1996 For further information, please call: (512) 483-5244 The Texas Youth Commission (TYC) adopts new sec.93.31, concerning transportation of youth, with changes to the proposed text as published in the January 26, 1996, issue of the Texas Register (21 TexReg 654). The changes to the proposed text consist of adding prohibition of chemical agents during transportation and slightly restructuring the text of each sentence. The justification for the new section is more efficient agency operation. The new rule will provide specific guidelines for transporting TYC youth among TYC facilities and community corrections programs. No comments were received regarding adoption of the new rule. The new rule is adopted under the Human Resources Code, sec.61.034, which provides the Texas Youth Commission with the authority to make rules appropriate to the accomplishment of its functions. sec.93.31. Transportation of Youth. (a) The statewide transportation unit, regional transportation unit, and individual program staff may transportation or coordinate the transportation of Texas Youth Commission (TYC) youth among its facilities and community corrections programs is coordinated by (b) The statewide transportation unit will provide transportation primarily between programs involving an institution. The unit may provide courtesy transportation and may assist in coordinating transportation of youth between TYC programs not involving an institution, including interstate compact movements, and some new commitments. (c) Counties are responsible for transporting all new commitments to a TYC assessment unit and for providing all transportation necessary to meet requirements of a bench warrant. (d) Use or possession of chemical agents is prohibited during transportation. (e) Mechanical restraints will be used when youth are being transported by the transportation unit and by others when transporting youth to a placement of greater restriction that their current program. Mechanical restraints may be used during transportation by others when circumstances create a risk of escape or harm. All use of mechanical restraint during transportation shall be accordance with GOP.67.09, sec.91.59 relating to Use of Force. This agency hereby certifies that the adoption have been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 4, 1996. TRD-9603060 Steve Robinson Executive Director Texas Youth Commission Effective date: March 25, 1996 Proposal publication date: January 26, 1996 For further information, please call: (512) 483-5244 TITLE 40. SOCIAL SERVICES AND ASSISTANCE Part I. Texas Department of Human Services Chapter 19. Nursing Facility Requirements for Licensure and Medicaid Certification Subchapter X. Requirements for Medicaid-Certified Facilities 40 TAC sec.19.2322 The Texas Department of Human Services (DHS) adopts an amendment to sec.19. 2322, with changes to the proposed text as published in the December 19, 1995, issue of the Texas Register (20 TexReg 10882). Justification for the amendment is to implement a rider to the General Appropriations Act, passed in the 74th Texas Legislature, and new state law, Texas Human Resource Code, sec.32.0245. The amendment will function by requiring the department to waive restrictions for Medicaid-certified beds for the care and treatment of persons with Alzheimer's disease in facilities associated with state-operated medical schools and by giving the commissioner the authority to grant waivers to the existing moratorium rules. The new waivers would allow additional Medicaid-certified beds to serve persons under the supervision of the Department of Criminal Justice and to meet the demand in underserved minority communities. During the public comment period, DHS received a comment from the director of the Alzheimer's Program at the Texas Department of Health. Comment: There is language in the rule which is contrary to a new state law. Specifically, Texas Human Resources Code, sec.32.0245 requires DHS to waive for a nursing facility a restriction imposed by state law on the authority to contract under the state Medicaid program for nursing home beds based on the percentage of beds that are occupied in a geographical area if the facility: is affiliated with a medical school operated by the state; is participating in research programs for the care and treatment of persons with Alzheimer's disease; and is designed to separate and treat Alzheimer's disease by stage and functional level. Response: The department agrees and has made the clarification in sec.19. 2322(d), as required by law. The commissioner, therefore, must grant a waiver under the stated conditions. In addition, the department has changed sec.19.2322(c)(8)(D)(ii)(III) to clarify that long term care services in that specific location are unattainable due to the lack of such service availability. The amendment is adopted under the Human Resources Code, Title 2, Chapters 22 and 32, which authorizes the department to administer public and medical assistance programs, and under Texas Government Code sec.531.021, which provides the Health and Human Services Commission with the authority to administer federal medical assistance funds. The amendment implements the Human Resources Code, sec. sec.22.001-22.024 and sec.sec.32.001-32.042. sec.19.2322. Additional Participation Requirements. (a)-(b) (No change.) (c) If the provider meets all criteria, DHS may exempt the following facilities from the policy stated in subsection (b) of this section. (1)-(7) (No change.) (8) Facilities that apply for participation under the special DHS commissioner's waiver authority. (A) The commissioner of DHS has authority to waive the restriction on contracting in subsection (b) of this section and direct DHS to enter into Medicaid contracts with nursing facilities that satisfy the requirements specified in this subparagraph. In a manner acceptable to DHS, each of these facilities must: (i) document that there is a crisis and immediate need for additional Medicaid nursing-facility beds in the facility's community; (ii) document that there are problems with the quality of care available in the facility's community, and show that new Medicaid-contracted beds will remedy these problems; (iii) demonstrate that Medicaid residents in the facility's community do not have reasonable access to nursing-facility care; (iv) document strong community support for a new Medicaid nursing facility; and (v) agree to make a contractual commitment that the individual or company entering into a Medicaid contract under the provisions of this paragraph will directly own and operate the facility for at least three years. (B) DHS applies the following criteria when granting special DHS commissioner's waivers: (i) If facilities have not completed construction requirements, and if facilities have not been licensed and certified within 18 months of the date on the DHS letter approving the waiver, the DHS commissioner will rescind the approvals for all such waivers granted. (ii) DHS may grant one 90-day extension for extenuating circumstances, at the discretion of the DHS commissioner. (C) Facilities whose commissioner's waiver was rescinded after September 1, 1994, may apply for participation under the previous waiver, and any recision of that waiver will be nullified, if the following circumstances can be documented in a manner acceptable to DHS: (i) the previous waiver was rescinded because the facility had not completed construction requirements within the time limits specified in the rule and such failure was due to circumstances beyond the control of the facility; (ii) a substantial amount of construction was undertaken within the time limit specified in the rules; (iii) the construction of the facility is being financed by a loan insured by the United States Department of Housing and Urban Development or other governmental entity; and (iv) construction, licensure, and certification are completed by March 1, 1995. (D) The commissioner may grant a waiver of these restrictions for a contract if the commissioner determines that beds are necessary for the following circumstances: (i) to meet the need identified and determined by the Texas Department of Criminal Justice as necessary to serve persons under the supervision of the Department of Criminal Justice who have been released on parole, mandatory supervision, or special needs parole under the Code of Criminal Procedure, Article 42.18; or (ii) to meet the documented demand in underserved minority communities where beds are not available from existing resources. For purposes of this waiver, the term minority shall mean all persons who are Black, Hispanic, Asian or Pacific islander, American Indian, or Alaskan native. The facility must (I) be located in a county with a total population of at least 1,000,000, according to the 1990 U.S. census; (II) serve a zip code whose minority population is greater than 50%, according to the 1990 U.S. census; (III) document that minority residents in the zip code in which facility is located are unable to attain Medicaid long term care services in that specific location, due to lack of such service availability; and (IV) be the only waivered facility, as defined in subparagraph (A) of this paragraph, in that county. (d) DHS waives for a nursing facility a restriction imposed by state law on the authority to contract under the state Medicaid program for nursing home beds based on the percentage of beds that are occupied in a geographical area if the facility: (1) is affiliated with a medical school operated by the state; (2) is participating in research programs for the care and treatment of persons with Alzheimer's disease; and (3) is designed to separate and treat Alzheimer's disease by stage and functional level. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 8, 1996. TRD-9603366 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: April 1, 1996 Proposal publication date: December 19, 1995 For further information, please call: (512) 438-3765 Part XX. Texas Workforce Commission Chapter 801. Local Workforce Development Boards 40 TAC sec.801.2 The Texas Workforce Commission adopts new sec.801.2, concerning waivers which may be granted regarding service delivery, board staffing and developmental services, with changes to the proposed text as published in the January 26, 1996, issue of the Texas Register (21 TexReg 654). The Workforce and Economic Competitiveness Act, as amended by Chapter 655, Acts of the 74th Legislature, 1995, requires the Commission to establish rules for the formation of local workforce development boards to plan and oversee the delivery of all workforce training programs in local workforce development areas. The Act restricts the delivery of workforce training and services developmental services and requires that local workforce development boards have an independent staff. The rule will permit boards to request waivers on one or more of the three statutory prohibitions if the board can show that a waiver is necessary for the delivery of workforce training programs in the local workforce development area. The Commission held a public hearing on the proposed rule on February 14, 1996. Oral comments received at that hearing were replicated in substance within the 48 written comments received. The Legislature, in providing for a new integrated workforce development system, has imposed certain prohibitions on local workforce development boards, but required a system for obtaining waivers. These rules establish the system for obtaining these waivers from the Texas Workforce Commission. Only under exceptional circumstances will such waivers be allowed. The Commission acknowledges that private industry councils (PICs) under the federal Job Training Partnership Act (JTPA) have fewer restrictions on their activities with regard to intake and eligibility determination, and also with regard to the provision of workforce training and services, than do workforce development boards under state law. However, workforce development boards, which serve as private industry councils, must abide by the state imposed restrictions. Private industry councils that wish to retain their flexibility under federal regulations and that choose not to become local development boards may not exercise any of the additional power and authority granted to a local workforce development board under state law. The following parties submitted written and/or oral comments prior to or following publication of the proposed rule: John D. Baker, Texas Workforce Development Network; Don A. Balcer, Regional Administrator, U.S. Department of Labor; Jimmie Bender, People for Progress, Inc.; Bruce P. Bower, Houston Welfare Rights Organization; Rodney Bradshaw, Houston-Galveston Area Council; Michael Carr, Executive Vice President, Deaf Smith County Chamber of Commerce; Preston Combest, County Judge, Camp County; Vernon Cook, County Judge, Roberts County, and Chairman, Board of Directors, Panhandle Regional Planning Commission; Walter G. Diggles, Texas Association of Regional Councils; Susan Duecy; Paul Edwards, Middle Rio Grande Development Council; Ricky Fritz, County Judge, Scurry County; Rey Garcia, Texas Association of Community Colleges; John Garth, Central Texas CEO Consortium Board; Gladys Gerst, City Council Member, City of Sweetwater; Edward Hamilton, President Amarillo Mastercraft Industries, and Chair, Panhandle Private Industry Council; Dane Harris, President, Texas Association of Business & Chambers of Commerce; Ron Harris, County Judge, Collin County; Gilberto Hinojosa, Cameron County Judge; Tommy Honeycutt, County Judge, Lampasas County; Lee F. Jackson, County Judge, Dallas County; Kim Kerchoff, Texas Association of Regional Councils; Glynn Knight, East Texas Council of Governments; Laurie Boullion Larrea, Private Industry Council of Dallas, Inc.; Joe McComb, County Commissioner, Nueces County; Bob McPherson, Center for the Study of Human Resources, The University of Texas at Austin; Alan Miller, Austin/Travis County Private Industry Council; Frances Monk, President-elect, South East Texas Regional Planning Commission and Mayor-Pro Tem, City of Port Neches; David P. Mooney, Chairman, East Texas Private Industry Council; Cynthia Mugerauer, Acting Executive Director of the Texas Council on Workforce and Economic Competitiveness; Representative Reno Oliveira, Chairman, House Economic Development Committee; Tom Patterson, Amarillo Chamber of Commerce; David N. Perdue, County Judge, Knox County and President, Texas Association of Counties; Larry Phillips, President, Angelina College; Sandra Pickett, City of Liberty; Burton Raiford, Texas Department of Human Services; Willis Smith, County Judge, Lipscomb County and Chair, Board of Directors Panhandle Job Training Consortium; Jack Steele, Houston-Galveston Area Council; Marcia Strieber, Workforce Development Board of Central Texas; Mike Temple, President, Texas Workforce Association; Texas Legal Services Center; Carl K. Thibodeaux, County Judge, Orange County; Carol Thomas, Permian Basin Private Industry Council; Tom Vandergriff, County Judge, Tarrant County; Joe Frank Wheeler, Executive Vice President, Borger Chamber of Commerce; George Wilkins, Secretary-Treasurer, East Texas Council of Governments; Lee E. Williams, County Judge, Wood County; and Linda Williamson, Texas Department of Commerce. Several commenters urged that the proposed language with regard to independent staffing, "the board's staff may not be employed by, or provide services to, any other person in conflict with the board's duties and function under the Act," was in contravention of the legislative intent of House Bill 1863 to give control of workforce programs to locals. The Commission did not intend to tie the hands of local workforce development boards as to the employment of staff by the phraseology used in the proposed rule. The language was intended to ensure that the board's staff was accountable only to the board. Therefore, the proposed language was struck and replaced by language closely resembling language suggested by one commenter that more clearly states the agency's position. Several commenters argued that the proposed language, "the board's staff may not be employed by, or provide services to, any other person in conflict with the board's duties and functions under the Act," is vague and ambiguous. The Commission replaced the objectionable language with a sentence that more clearly states the agency's position. Several commenters argued that the same language regarding independent staffing would lead to the creation of new administrative entities and would thereby lead to administrative inefficiency. The Commission replaced the offending language with other language that better states the agency's position. One commenter noted that the legislation limits its explanation of the independent staffing requirement even though it is clear that if the statutory independent staffing requirement was only intended to ensure separate service provision, then the separate service provision waiver would be sufficient. Therefore, the commenter suggests that the independent staffing provision should clarify that staff would not be independent if the staff reports to an entity other than the board, regardless of whether that other entity provided services. The Commission agrees that the statutory intent of the independent staffing provision is to have the board's staff be accountable to the board, and not another entity. Another commenter urged that the Legislature's intent with the independent staffing provision was to ensure that the board's staff would be protected from undue influence by another entity. The Commission agrees and has attempted to ensure that a board's staff will remain accountable to the board. One commenter suggested that when the staff of a private industry council is provided by a separate administrative entity it prohibits the staff from acting autonomously. The commenter suggested that the rules should ensure that a board have an autonomous staff. The Commission agrees and has addressed this concern by requiring that boards ensure the accountability of their staff through employment policies or contractual provisions. One commenter noted that the issue of independent staffing could be addressed in the CEO-Partnership agreements to assure independent staffing and not the establishment of a separate local entity in a constrained funding environment. The Commission agrees in principle that the accountability of a board's staff may be addressed in an appropriate document; thus, the Commission modified the language with regard to the independent staffing provision so that boards may ensure accountability through contractual provisions or employment policies. One commenter maintained that, in the real world, staff must serve both the board and the chief elected officials, and some provision in the rules for "equal" staff support to both significant partners should be included. The Commission believes that it has addressed the concerns of the Legislature that boards' staff be independent of any other entity by requiring that boards ensure accountability of their staff through employment policies and contractual provisions. One commenter argued that independent staffing was an important safeguard of the new system which would ensure independence and avoid split loyalties. The Commission agrees and has tried to address this concern in the waiver rules with regard to independent staffing. Several commenters noted that state rules restrict the staff of a local board from providing intake eligibility and assessment, but that the federal Job Training Partnership Act (JTPA) does not restrict private industry councils from providing those services. The Commission acknowledges that private industry councils have fewer restrictions on their activities with regard to intake and eligibility determination, and also with the provision of workforce training and services. However, workforce development boards, which serve as private industry councils under the JTPA, must abide by the state imposed restrictions. Private industry councils that wish to retain their flexibility under federal regulations and that do not become local workforce development boards may not exercise any of the powers granted to a local workforce development board under the Act. The Commission believes the legislature provided for local areas to have the option to form a board and comply with the state requirements or continue as a private industry council under JTPA. One commenter suggested that the definition of "one-stop" services would put current one-stop centers, operating under a pilot program by the Department of Labor, out of compliance with the rule. The Commission believes that the definition of "one-stop" services, which substantively includes the services required of a Career Development Center under House Bill 1863 and Senate Bill 642, will have no effect on the DOL "one-stop" pilot centers. Although some areas may form boards and subsequently modify the services at a pilot center to comply with the statutory requirements of a Career Development Center, the waiver rules do not apply to centers that are not operated as Career Development Centers by a workforce development board. One commenter suggested that the definition of "one-stop" services could be interpreted as an exclusive list, as opposed to an inclusive list. The Commission has clarified that the definition of "one-stop" services available at a Career Development Center is an open-ended list by using the phrase "including, but not limited to". One commenter remarked that the definition of "one-stop" services as proposed suggested that the Career Development Center must provide support services, loans and the like, under subsection (b)(3)(D). The commenter suggested that the definition should include "access to, or information about support services . . ." The Commission believes that the definition of "one-stop" services in the proposed rule substantively tracks the language used in the statute to determine those services which must be provided at a Career Development Center. One commenter urged that the Commission not define the term "one-stop" services but rather use the term Career Development Center. The Commission agrees that the term "one-stop" has come to mean many things to many people; however, the statute prohibits a person who provides "one-stop" services at a Career Development Center from also providing developmental services. Further, there is no statutory definition of "one-stop" services. Accordingly, the Commission believes that it is necessary to define the term "one-stop" services in order to more clearly define the services that must be kept separate. One commenter noted that a definition of developmental services was needed. The Commission agrees and added such a definition. Several commenters suggested that time limits on the submission and consideration of a waiver request should be included in the rule. The Commission believes that each set of circumstances with regard to a waiver request will be unique and must be given due consideration, without the constraints of a rigid timetable. One commenter asserted that the term "proposals" should be used instead of the term "bid" in the list of information to be submitted with a waiver request. The Commission agrees that use of the word proposal is better, so the word "bid" has been replaced with "proposal." One commenter noted that the law does not prohibit a state agency from submitting a response to a request for proposal, and that the re-wording of subsection (f)(2)(A) to read "documentation of the process used to notify the public, state agencies, and other interested parties of the solicitation..." would make clear that state agencies may submit proposal without suggesting that the TWC could override a waiver request by becoming a service provider. The Commission agrees that the statute does not expressly prohibit a state agency from responding to a request for proposal; however, the Commission has determined that the issue of the agency's provision of services is best dealt with elsewhere. Accordingly, the request for information regarding the TWC's ability to provide services was struck from the rule. Several commenters objected to requiring a request for waiver to address whether the Texas Workforce Commission (TWC) is able to provide the needed services in the area. It is argued that this sets up a conflict of interest, that it would preclude the granting of any waivers, that TWC should have to compete in the proposal process, that TWC has no demonstrated performance in the new style system, and that ambiguous lines of authority would be created. The proposed request was for information regarding the ability of the TWC to provide needed services in areas in which no satisfactory service providers responded to the board's request for proposal. However, the Commission has determined that the issue is more properly addressed elsewhere rather than by including it in the list of information to be submitted with a waiver request. Accordingly, the item was deleted from the proposed rule. One commenter opined that whether TWC is able or willing to provide particular services in a given area should be an agency-based decision and recommended that the information regarding TWC's ability to provide services be struck from the requested information submitted with a waiver request. The Commission has determined that information regarding the TWC's ability to provide services for a board is better addressed elsewhere. Accordingly, the request for information was struck from the list. One commenter remarked that the rules need to provide general guidance concerning which items would be of primary interest in the review of a waiver request. The Commission anticipates that all factors will be considered equally and that each area's unique set of circumstances will be viewed in totality to determine the need for a waiver. Therefore, no one factor, nor any prioritized list of factors, will be determinative of a waiver request. One commenter was concerned as to what constitutes a "material change in circumstances" that the Commission might reconsider a waiver. A material change in circumstances is generally held to be the acquisition of new or different information that a reasonable person would have considered material in the outcome of his decision-making process. The Commission believes that it should retain jurisdiction over the grant of a waiver, in the event that a material change of circumstances would make the waiver unnecessary. However, the Commission recognizes that new information would not necessarily warrant the withdrawal of a waiver in the middle of a program year. One commenter raised several questions about potential conflicts between federal law and the proposed rules, or underlying state law. He urged that extra state law requirements not necessarily affect the status of a private industry council (PIC) that meets federal law requirements. He also urged that rules address training requirements to avoid conflicts. The Commission agrees that private industry councils have options which are not available to boards that assume the functions of private industry councils under the JTPA. However, areas that wish to retain the options available to a private industry council may choose not to form a local workforce development board. The issue of board training is being addressed through administrative channels within the TWC. Two commenters expressed support for the proposed rule as written. One commenter requested that the Commission assure that service deliverers make services available to all segments of the population including those most needy. The commenter urged the Commission to establish measures to ensure the delivery of effective education, training and job placement services and further urged the Commission to hold service providers strictly accountable to those measures. The Commission agrees that service deliverers must be held accountable for the appropriate delivery of services to all segments of the population. However, the waiver rules address a different aspect of the board's functions. Performance measures will be addressed elsewhere. Several commenters noted that local areas need planning money to begin the process of developing local workforce boards and also that there needs to be a transition period available for the smooth transfer of programs from the current system to the new locally driven system. The Commission agrees and will address the planning money issue in another forum. In addition, the Commission recognizes that waivers may be necessary in some instances to allow areas to transition to other service providers. One commenter suggested that waivers of separate service provision for workforce training and services and for developmental services be considered illegal unless the local community college in the service area cannot provide service delivery in the most cost-effective manner. The Commission believes that the statute provides for the grant of a waiver from any of the stated prohibitions in an appropriate circumstance, to be determined by the Commission. One commenter recommended that no waivers be granted except in extreme circumstances and further that the Commission may recommend a "one-time waiver not to exceed one year." The Commission agrees that waivers should be the exception, not the rule; however, the statute clearly permits the granting of a waiver if circumstances warrant. Accordingly the Commission believes that the waiver rule addresses the concern that waivers require exceptional circumstances and that waiver must be limited in duration. One commenter objected that the "workforce training and services" was defined too broadly, and does not track the statutory definition. The commenter argues that intake, eligibility and assessment functions are operational functions and should not be considered part of the "training and services programs" in the statutory definition of "workforce training and services." The Commission changed the proposed definition of "workforce training and services" so that it now reads like the statutory definition. However, the Commission created a definition for operational functions to clarify that some services that the board cannot provide without a waiver are operational functions and not "workforce training and services." One commenter requested that the Commission adopt a provision in the waiver rule requiring that a local board that receives a waiver be required to provide public notice of the waiver, including an expiration date. The commenter argued that notice would provide information to interested parties who may wish to develop additional capacity in a local area. The Commission believes that the rule as written requires that a local board submit information regarding the public process used to determine whether a qualified alternative provider exists in the local workforce area. The Commission feels that this process will provide notice in the region that the board is seeking a waiver of one of the statutory prohibitions. Further, the Commission has restricted waivers to no greater than the term of one plan which will require that a local board again conduct a public request for proposal for the next planning cycle. One commenter suggested that the rule require that waiver requests be submitted in conjunction with submission of the local plan. The Commission believes that the rule as written better serves the planning process. The rule permits a board to seek a waiver request at any time in its planning process. Therefore, if a board would like to conduct public request for proposal prior to formulating its local plan, it may do so. One commenter suggested that in some instances a board may need to submit a wavier request after a plan is in place; therefore, the Commission should delete the portion of that rule stating "in the board's planning process." The Commission believes that such a change from the approved plan will be dealt with as a modification or amendment to the plan. One commenter suggested that the Commission use the definition of "workforce services" as previously used by the Texas Council on Workforce and Economic Competitiveness. The Commission has chosen to use the definition of "workforce training and services" as it is defined in the Act, because it works best within the framework of the proposed waiver rule. One commenter noted there was no reference to an appeal process should a waiver be denied, and suggested that if there is no opportunity to appeal the Commission decision, that a statement be included in the rule that the Commission decision is final. The Commission agreed with this comment and added the provision that the Commission's decision on a waiver request shall be final. The new section is adopted under Texas Civil Statutes, Labor Code, sec.302. 063, as amended by Chapter 655, Acts of the 74th Legislature, 1995, which direct the Texas Workforce Commission to develop objective criteria for the granting of waivers under Texas Civil Statutes, Government Code, sec.sec.2308.264, 2308.267, and 2308.312. No other statute, article or code will be affected by this rule. sec.801.2. Waiver Requirements. (a) Purpose of Rule. The Workforce and Economic Competitiveness Act, sec.sec.2308.264, 2308.267, and 2308.312, Government Code, Vernon's Texas Civil Statutes, Annotated, sets forth prohibitions regarding service delivery, board staffing, and developmental services. Only under exceptional circumstances will waivers from such prohibitions be allowed. The Commission's decision on a waiver request shall be final. (b) Definitions. The following words and terms, when used in this section, shall have the following meanings unless the context clearly requires otherwise: (1) Board-A local workforce development board as created under the Workforce and Economic Competitiveness Act. (2) Developmental services-Program services designed to increase a participant's basic education and skill level, including adult basic education courses, GED preparatory courses, adult literacy programs, and occupational skills training. (3) One-Stop services-Services provided at a Career Development Center established by a board, including, but not limited to: (A) access to labor market information in the workforce area; (B) individual education, training, and employment referral services; (C) independent assessment of individual needs and the development of an individual service strategy; (D) centralized and continuous case management and counseling; (E) support services, including, child care assistance, student loans, and other forms of financial assistance required to participate in and complete training; (F) uniform eligibility determination of state and federal benefit programs, including Food Stamp Employment and Training and unemployment insurance benefits; and, (G) other employment services, such as job readiness seminars, life skills programs, and job search seminars. (4) Operational functions-Intake, eligibility determination, assessment, and referral. (5) Person-Any individual, sole proprietorship, partnership, corporation or other legal entity. (6) Workforce development-Includes workforce educational programs and workforce training and services. (7) Workforce education-Articulated career-path programs and the constituent courses of those programs that lead to initial or continuing licensing or certification or associate degree-level accreditation and that are subject to: (A) initial and ongoing state approval or regional or specialized accreditation; (B) a formal state evaluation that provides the basis for program continuation or termination; (C) state accountability and performance standards; and (D) a regional or statewide documentation of the market demand for labor according to employers' needs. (8) Workforce training and services-Training and services programs that are not "workforce education". (c) Independent Service Delivery. A board is prohibited from directly providing workforce training and services. A board is prohibited from directly providing operational functions. (d) Separate Staffing. A board may employ professional, technical and support staff to carry out its strategic planning, oversight, and evaluation functions. The staff employed by the board must be employed separately and independently of any person that provides workforce training and services. The independent nature of the board's staff shall be ensured through employment policies or contractual provisions. (e) Developmental Services. A person who provides "one-stop" services at a Career Development Center may not also provide developmental services. Persons seeking developmental services must be referred to the full range of services available in the region and must not be unduly influenced to participate in any training services made available by a particular provider. (f) Requesting a Waiver of the Requirements. (1) The board may submit its written request for a waiver under subsection (c), (d), or (e) to the Commission at any time in the board's planning process, including at the time of submission of the strategic plan. (2) A request for a waiver of any of the requirements under subsection (c), (d), or (e) must contain the following: (A) A detailed justification for the waiver, including, but not limited to: (i) cost-effectiveness; (ii) prior experience; (iii) geographic and budgetary considerations; (iv) availability of qualified applicants; and, (v) a detailed proposal for the provision of such services should a waiver be granted. (B) Documentation of the process used to solicit proposals for the provision of necessary services, including, but not limited to: (i) the process used to notify the public and interested parties of the solicitation of proposals for the provision of necessary services; (ii) details regarding any proposals or inquiries received as a result of public notice and solicitation for proposals, including responses given to any inquiries received; (iii) criteria used to evaluate any proposals received; and, (iv) methodology used to determine the lack of any existing qualified alternative. (g) Duration of Waiver. (1) A waiver may be granted for a period less than, but not to exceed, the effective term of an approved plan and budget. (2) A waiver may be conditioned upon the board's completion of measures taken to eliminate the need for a waiver. (h) Changed Circumstances. If the Commission becomes aware of a change in circumstances materially affecting its decision to grant a waiver, the Commission may review its decision and require the board to submit information regarding the continued need for the waiver. This agency hereby certifies that the adoption have been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 6, 1996. TRD-9603171 J. Ferris Duhon Legal Counsel Texas Workforce Commission Effective date: March 27, 1996 Proposal publication date: January 26, 1996 For further information, please call: (512) 463-2291 40 TAC sec.801.3 The Texas Workforce Commission adopts new sec.801.3, concerning submission of plans, plan modification and amendments with changes to the proposed text as published in the January 26, 1996, issue of the Texas Register (21 TexReg 656). The Workforce and Economic Competitiveness Act, as amended by Chapter 655, Acts of the 74th Legislature, 1995, requires the Commission to establish rules for the development and approval of a local plan submitted by a local workforce development board, in order that the board may plan and oversee the delivery of workforce training and services programs in the workforce development area. The Commission held a public hearing on the proposed rules on February 14, 1996. Oral comments received at that hearing were replicated in substance within the five written comments received. This rule will establish the framework for submission and review of workforce training and services plans and budgets. The following parties submitted written and/or oral comments following publication of the proposed rule: John Baker, The Texas Workforce Development Network; Rodney Bradshaw, the Houston-Galveston Area Council; Vernon Cook, County Judge, Roberts County, and Chairman, Board of Directors, Panhandle Regional Planning Commission; Horace Groff, County Judge, Grayson County, David N. Perdue, County Judge, Knox County and President of the Texas Association of Counties; and, Jack Steele, Houston Galveston Area Council. Several commenters asked that the rule recognize that there may be a delegation of authority to act on behalf of the Chief Elected Officials and that the designee with authority to act on behalf of the whole body of CEOs should be allowed to approve the proposed plan modifications and amendments. These comments were well-taken by the Commission and the proposed rule was amended in 801.3(c)(1) to reflect the change. One commenter commended the Commission on the rule's allowance for considerable flexibility with regard to the submission, modification and amendment of local plans. No other substantive comments with regard to the plan rules were offered. The new section is adopted under Texas Civil Statutes, Labor Code, sec.302. 041 and sec.302.042, as amended by Chapter 655, Acts of the 74th Legislature, 1995, which direct the Texas Workforce Commission to design and implement a state- local planning process for workforce training and services, to review local plans and to make recommendations to the Texas Council on Workforce and Economic Competitiveness regarding plan implementation. No other statute, article or code will be affected by this rule. sec.801.3. Requirements for Submission of Local Workforce Training and Services Plans, Modifications and Amendments. (a) Purpose of Rule. (1) All workforce training and services plans and budgets developed pursuant to state and federal law by a local workforce development board shall be submitted to the Workforce Division of the Texas Workforce Commission for review. (2) Before a plan and budget will be forwarded by the Commission to the Texas Council on Workforce and Economic Competitiveness (TCWEC) for approval, all requirements of this section must be met. (b) Standards for Submission. A local workforce training and services plan and budget will be reviewed according to criteria established by the Commission. The Commission will provide guidelines for strategic planning and budgeting to local boards. (c) Plan Modification or Amendment. An approved plan and budget may be changed by either modification or amendment. Either method of change must be submitted to the Commission for review before implementation. (1) A modification is a substantial revision of a plan and budget. The Commission will provide criteria to local boards that will define what constitutes a substantial revision. Each modification must provide evidence that a majority of the Chief Elected Officials (CEOs) of a local workforce delivery area or their designee or designees with signatory authority have approved the modification. (2) An amendment is a minor adjustment to a plan and budget. The Commission will provide criteria to local boards that will define what constitutes a minor adjustment. An amendment does not require approval by a majority of the CEOs of a local workforce delivery area. This agency hereby certifies that the adoption have been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 6, 1996 TRD-9603172 J. Ferris Duhon Legal Counsel Texas Workforce Commission Effective date: March 26, 1996 Proposal publication date: January 26, 1996 For further information, please call: (512) 463-2291