Adopted Sections 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 4. AGRICULTURE Part I. Texas Department of Agriculture Chapter 7. Pesticides 4 TAC sec.7.10, sec.7.32 The Texas Department of Agriculture (TDA) adopts amendments to sec.7.10 and sec.7.32, concerning requirements for the use of the livestock protection collar, without changes to the proposed text as published in the August 7, 1992, issue of the Texas Register (17 TexReg 5497). The amendments are adopted to bring the Livestock Protection Collar Applicator Recertification Program into the General Pesticide Applicator Recertification Program, which will result in the reduction of administrative costs to the agency and a reduction in costs to applicators using the collar. The amendments integrate the Livestock Protection Collar Licensing and Recertification Program into the agency's General Recertification Program, terminate the reporting requirements of the three-year monitoring program, simplify monthly sales reporting requirements, remove the ceiling on the number of agents authorized to distribute the collars, and allow for collar pool agents. No comments were received regarding adoption of the amendments. The amendments are adopted under the Texas Agriculture Code, sec.76.003, which provides TDA with the authority to regulate the time and conditions of use and purchase and establish recordkeeping requirements for state-limited-use pesticides; sec.76.004, which authorizes TDA to establish rules to carry out Chapter 76; sec.76.104, which authorizes TDA to adopt rules regarding the manner and method of pesticide application; and sec. sec.76.101-76. 103 and 76.105- 76.113, which provides TDA with the authority to establish requirements for the licensing and certification of pesticide applicators. 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 November 30, 1992. TRD-9216035 Dolores Alvarado Hibbs Chief Administrative Law Judge Texas Department of Agriculture Effective date: December 23, 1992 Proposal publication date: August 7, 1992 For further information, please call: (512) 463-7583 TITLE 16. ECONOMIC REGULATION Part IV. Texas Department of Licensing and Regulation Chapter 61. Boxing Subchapter C. Karate 16 TAC sec.sec.61.301-61.316 The Texas Department of Licensing and Regulation adopts the repeal of sec.sec.61.301-61.316, concerning karate, without changes to the proposed text as published in the October 30, 1992, issue of the Texas Register (17 TexReg 7632). The sections are being repealed because Karate is no longer covered by Texas Civil Statutes, Article 8501.1. The repeal of these sections clarifies that karate is no longer covered by Texas Civil Statutes, Article 8501.1. No comments were received regarding adoption of the repeals. The repeals are adopted under Texas Civil Statutes, Article 8501.1, which provide the Texas Department of Licensing and Regulation with the authority to promulgate and enforce a code of rules to assure compliance with the Act. 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 November 30, 1992. TRD-9215998 Jack W. Garison Executive Director Texas Department of Licensing and Regulation Effective date: December 22, 1992 Proposal publication date: October 30, 1992 For further information, please call: (512) 463-3127 Chapter 66. Registration of Property Tax Consultants 16 TAC sec.66.21, sec.66.24 The Texas Department of Licensing and Regulation adopts an amendment to sec.66.21 and new sec.66.24, concerning the registration of property tax consultants, without changes to the proposed text as published in the October 30, 1992, issue of the Texas Register (17 TexReg 7632). Section 66.21 exempts real estate property tax consultants from the requirement that on or after February 1, 1995, a property tax consultant must be employed by or have an association with a registered senior property tax consultant and be under the direct supervision of the senior property tax consultant. Section 66.24 establishes procedures for applicants to reschedule an examination. The sections clarify Texas Civil Statutes, Article 8886, sec.2(f), regarding property tax consultants who qualified and registered under this section, and establishes procedures for applicants to reschedule an examination. No comments were received regarding adoption of the sections. The amendment and new section are adopted under Texas Civil Statutes, Article 8886, which provide the Department of Licensing and Regulation with the authority to promulgate and enforce a code of rules and take action necessary to assure compliance with the intent and purposes of the Act. 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 November 30, 1992. TRD-9215997 Jack W. Garison Executive Director Texas Department of Licensing and Regulation Effective date: December 22, 1992 Proposal publication date: October 30, 1992 For further information, please call: (512) 463-3127 TITLE 22. EXAMINING BOARDS Part XV. Texas State Board of Pharmacy Chapter 291. Pharmacies Community Pharmacy (Class A) 22 TAC sec.sec.291.31-291.36 The Texas State Board of Pharmacy adopts amendments to sec.sec.291.31-291.36. Sections 291.31-291.34 and 291.36, concerning definitions, personnel, operational standards, records, and Class A pharmacies compounding sterile pharmaceuticals are adopted with changes to the proposed text as published in the August 25, 1992, issue of the Texas Register (17 TexReg 5782). Section 291.35, concerning triplicate prescription requirements. The Federal Omnibus Budget Reconciliation Act of 1990 (OBRA '90) was signed into law on November 5, 1990. This Act amended the 1965 Medicaid law to condition Federal Medicaid payments for outpatient drugs on the participation of drug manufacturers in state rebate programs, the development of drug use review programs, and implementation of patient counseling requirements by the states. These adopted amendments will implement the prospective drug review provisions of the OBRA '90 and set standards for patient counseling and prospective drug review for all patients by pharmacists in Class A Pharmacies in Texas. In addition, the adopted rules correct non-substantive inconsistencies in the rules. A public hearing on the proposed rules was held on September 15, 1992, with eight persons giving oral testimony. In addition, the agency has received 17 letters of comment from 16 individuals for a total of 25 comments. The comments are summarized as follows. (1) Regarding sec.291.31 (Definitions), commentors suggested that: (a) the definition of "Confidential health information" be amended by deleting the word "which" and replace the "and" between subparagraph (B) and (C) with "or"; and (b) a definition for "new prescription" be added. The Agency agrees with these suggestions and has amended the definition of "confidential health information" as requested and added a definition for "new prescription." (2) Regarding sec.291.32 (Personnel), commentors suggested that: (a) the language in proposed sec.291.32(a)(2)(C) be modified to read the same as that in sec.291.33(c)(1)(B)(i); (b) pharmacists be allowed to delegate affixing the label to supportive personnel; (c) the phrase "in the pharmacist's professional judgement" be added to paragraph (2)(H); and (d) paragraph (2)(J) be amended as to read: assuring that a reasonable effort is made to obtain, record, and maintain patient medication records at the individual pharmacy. The Agency agrees with the suggestions made in (a), (c), and (d) and has amended the proposed language as suggested. The agency disagrees with the suggestion in (b) and believes that at the present time a pharmacist should be required to affix the label to the prescription container. (3) Regarding sec.291.33 (Operational Standards), commentors suggested that: (a) all pharmacies should not be required to have an area suitable for confidential patient counseling; (b) subsection (c)(1) should be modified to allow the pharmacist to use his or her professional judgement to determine the content of counseling and delete the reference to minimum; (c) "techniques for self-monitoring of drug therapy" as specified in the OBRA '90 language should be added to the list in (c)(1)(B); (d) subsection (c)(1)(B) should be modified to insert the words "to the patient" between "dispensed" and "by the pharmacy"; (e) subsection (c)(1)(B) be modified to not require that written information be provided; (f) subsection (c)(1)(B) be modified to not require written information but allow use of written information, "when deemed appropriate by the pharmacist"; and (g) subsection (c)(1)(B) be modified to delay requiring written information until January 1, 1994. The Agency agrees with the suggestions made in (b), (c), and (d) and partially agrees with the suggestions made in (f) and (g). The proposed language has been amended to reflect this agreement. The Agency disagrees with the suggestions in (a) and (e). The Agency believes that an area suitable for confidential patient counseling is necessary for pharmacists to effectively counsel their patients. The Agency also believes that the most effective method of presenting information to the patient is to orally tell the patient about the drug or device and to reinforce this oral counseling with written information. However, the proposed rules have been amended to allow pharmacies ning months to implement the provision to provide written information for patients who come into the pharmacy. Written information will be immediately required to be included with prescriptions that are delivered to the patient's residence. (4) Regarding sec.291.34 (Records), commentors suggested that: (a) sec.291. 34(c) exceeds the federal mandate and implementation should be delayed until 1994; (b) sec.291.34(c)(1) should be modified to delete the words "all pharmacies" and replace with "the individual pharmacy"; (c) the word "year" in sec.291.34(c)(2) and (4) should be clarified by replacing with "12-month period"; (d) review of patient history should be required for 180 days only, not one year; (e) a phase-in period for sec.291.34(c)(3)(E) and (F) should be allowed; (f) sec.291.34(c)(3)(G) should be deleted "since this is not mandated under OBRA and appears to be simply an unnecessary addition of details regarding specifics for a particular type of record system"; (g) implementation of sec.291.34(c)(4) should be delayed until January 1, 1994; and (h) a new sec.291.34(c)(5) should be added as follows: "Nothing in this subparagraph shall be construed as requiring a pharmacist to obtain, record, and maintain patient medication records when a patient or patient's agent refuses to provide the necessary information for such patient medication records." The Agency agrees or partially agrees with the suggestions made in (b), (c), and (h) and the proposed language has been amended to reflect this agreement. The Agency disagrees with the suggestions in (a), (e), (f), and (g). Each of these comments either suggest a delay in implementation of these proposed sections or suggest that the proposed sections exceed the requirements of the Federal requirements of OBRA. The Agency believes that these sections are mandated in the OBRA legislation and thus, does not believe that a delay in implementation is possible. The Agency also disagrees with the suggestion in (d) to require review of medication records for 180 days rather than one year. The agency believes that the one year requirement will result in a better review of records for possible drug-drug interactions. However, the agency will continue to monitor this requirement and if this appears to be overburdensome will consider modification of this portion of the rules in the future. Comments were received from the following groups: Texas Federation of Drug Stores; Texas Pharmaceutical Association; Texas Society of Hospital Pharmacists. Each of these groups generally supported the intent and concepts of pharmacist/patient counseling and drug regimen review as proposed. However, each of the groups had specific comments about certain sections of the rules and made recommendations for changes in these sections. The amendments are adopted under the Texas Pharmacy Act (Texas Civil Statutes, Article 4542a-1) sec.17, 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, or providing of prescription drugs or devices within the practice of pharmacy. 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. Confidential health information-Any health related information maintained by the pharmacy in the patient's records, is privileged and may be released only to: (A) the patient, or as the patient directs; (B) those health care professionals where, in the pharmacist's professional judgment, such release is necessary to protect the patient's health and well being; or (C) other such persons or governmental agencies authorized by law to receive such confidential information. New prescription drug order-A prescription drug order for a drug not previously taken by the patient. 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. Prospective drug review-A review of the patient's medication record and prescription drug order prior to dispensing. sec.291.32. Personnel. (a) Pharmacist-in-charge. (1) (No change.) (2) Responsibilities. The pharmacist-in-charge shall have the responsibility for, at a minimum, the following: (A)-(B) (No change.) (C) assuring that a pharmacist communicates to the patient or the 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); (D) assuring that a pharmacist communicates to the patient or the patient's agent on their request, information concerning any prescription drugs dispensed to the patient by the pharmacy; (E) assuring that a reasonable effort is made to obtain, record, and maintain patient medication records; (F) education and training of pharmacy supportive personnel; (G) establishment of policies for procurement of prescription drugs and devices and other products dispensed from the Class A pharmacy; (H) disposal and distribution of drugs from the Class A pharmacy; (I) bulk compounding of drugs; (J) storage of all materials, including drugs, chemicals, and biologicals; (K) maintaining records of all transactions of the Class A pharmacy necessary to maintain accurate control over and accountability for all pharmaceutical materials required by applicable state and federal laws and sections; (L) establishment and maintenance of effective controls against the theft or diversion of prescription drugs, and records for such drugs; (M) maintenance of records in a data processing system such that the data processing system is in compliance with Class A (Community) Pharmacy requirements; and (N) legal operation of the pharmacy, including meeting all inspection and other requirements of all state and federal laws or sections governing the practice of pharmacy. (b) Pharmacists. (1) (No change.) (2) Duties. Duties which may only be performed by a pharmacist are as follows: (A)-(C) (No change.) (D) interpreting patient medication records; (E)-(F) (No change.) (G) affixing the label to the prescription container and performing the final check of the dispensed prescription before delivery to the patient; (H) 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 significan, as specified in sec.291.33(c) of this title; (I) communicating to the patient or the patient's agent on their request, information concerning any prescription drugs dispensed to the patient by the pharmacy; and (J) assuring that a reasonable effort is made to obtain, record, and maintain patient medication records. (c)-(d) (No change.) sec.291.33. Operational Standards. (a) (No change.) (b) Environment. (1) General requirements. (A)-(C) (No change.) (D) A Class A pharmacy initially licensed after June 1, 1989, shall contain an area which is suitable for confidential patient counseling and beginning January 1, 1995, all Class A pharmacies shall contain an area which is suitable for confidential patient counseling; (E)-(F) (No change.) (2) (No change.) (c) Prescription dispensing and delivery. (1) Patient counseling and provision of drug information. (A) To optimize drug therapy, a pharmacist shall communicate to the patient or the patient's agent, information about the prescription drug or device which in the exercise of the pharmacist's professional judgement the pharmacists deems significant, such as the following: (i) the name and description of the drug or device; (ii) dosage form, dosage, route of administration, and duration of drug therapy; (iii) special directions and precautions for preparation, administration, and use by the patient; (iv) common severe side or adverse effects or interactions and therapeutic contraindications that may be encountered, including their avoidance, and the action required if they occur; (v) techniques for self monitoring of drug therapy; (vi) proper storage; (vii) refill information; and (viii) action to be taken in the event of a missed dose. (B) Such communication: (i) shall be provided with each new prescription drug order, and if the pharmacist deems appropriate, with prescription drug order refills; (ii) shall be provided for any prescription drug order dispensed by the pharmacy on the request of the patient or patient's agent; (iii) shall be communicated orally in person unless the patient or patient's agent is not at the pharmacy or a specific communication barrier prohibits such oral communication; and (iv) may be reinforced with written information when deemed appropriate by the pharmacist. Beginning September 1, 1993, the communication shall be reinforced with written information. (C) Nothing in this subparagraph shall be construed as requiring a pharmacist to provide consultation when a patient or patient's agent refuses such consultation. The pharmacist shall document such refusal for consultation. (D) In addition to the requirements of subparagraphs (A)-(C) of this paragraph, if a prescription drug order is delivered to the patient at the pharmacy the following is applicable. (i) So that a patient will have access to information concerning his or her prescription, a prescription may not be delivered to a patient unless a pharmacist is in the pharmacy, except as provided in clause (ii) of this subparagraph. (ii) An agent of the pharmacist may deliver a prescription drug order to the patient or his or her agent during short periods of time when a pharmacist is absent from the pharmacy, provided the short periods of time do not exceed two hours, and provided a record of the delivery is maintained containing the following information: (I)-(V) (No change.) (iii) Any prescription delivered to a patient when a pharmacist is not in the pharmacy must meet the requirements described in subparagraph (E) of this paragraph. (iv) A Class A pharmacy shall make available for use by the public, a current or updated edition of the United States Pharmacopeia Dispensing Information, Volume II (Advice to the Patient), or, another source of such information, such as patient information leaflets. (E) In addition to the requirements of subparagraphs (A)-(C) of this paragraph, if a prescription drug order is delivered to the patient or his or her agent at the patient's residence or other designated location, the following is applicable. (i) The information specified in subparagraph (A) of this paragraph shall be delivered with the dispensed prescription in writing. (ii) If prescriptions are routinely delivered outside the area covered by the pharmacy's local telephone service, the pharmacy shall provide a toll-free telephone line which is answered during normal business hours to enable communication between the patient and a pharmacist. (iii) The pharmacist shall place on the prescription container or on a separate sheet delivered with the prescription container in both English and Spanish the local and if applicable, toll-free telephone number of the pharmacy and the statement: Written information about this prescription has been provided for you. Please read this information before your take the medication. If you have questions concerning this prescription, a pharmacist is available during normal business hours to answer these questions. (F) The provisions of this paragraph do not apply to patients in facilities where drugs are administered to patients by a person required to do so by the laws of the state (i.e., nursing homes). (2) Prospective drug review. (A) For the purpose of promoting therapeutic appropriateness, a pharmacist shall, at the time of dispensing a prescription drug order, review the patient's medication record. Such review shall at a minimum identify clinically significant: (i) inappropriate drug utilization; (ii) therapeutic duplication; (iii) drug-disease contraindications; (iv) drug-drug interactions; (v) incorrect drug dosage or duration of drug treatment; (vi) drug-allergy interactions; and (vii) clinical abuse/misuse. (B) Upon identifying any clinically significant conditions, situations, or items listed in subparagraph (A) of this paragraph, the pharmacist shall take appropriate steps to avoid or resolve the problem including consultation with the prescribing practitioner. (3) Prescription containers. (A)-(C) (No change.) (4) Labeling. At the time of delivery of the drug, the dispensing container shall bear a label with at least the following information: (A)-(M) (No change.) (d)-(h) (No change.) sec.291.34. Records. (a) (No change.) (b) Prescriptions. (1)-(2) (No change.) (3) Verbal prescription drug orders. (A)-(B) (No change.) (C) If a prescription drug order is transmitted to a pharmacist verbally, the pharmacist shall note any substitution instructions by the practitioner or practitioner's agent on the file copy of the prescription drug order. Such file copy may follow the two-line format indicated in paragraph (2)(B) of this subsection, or any other format that clearly indicates the substitution instructions. (D)-(E) (No change.) (4) (No change.) (5) Authorization for substitution. (A)-(D) (No change.) (6)-(8) (No change.) (c) Patient medication records. (1) A patient medication record system shall be maintained by the pharmacy for patients to whom prescription drug orders are dispensed. (2) The patient medication record system shall provide for the immediate retrieval of information for the previous 12 months which is necessary for the dispensing pharmacist to conduct a prospective drug review at the time a prescription drug order is presented for dispensing. (3) The pharmacist-in-charge shall assure that a reasonable effort is made to obtain and record in the patient medication record at least the following information: (A) full name of the patient for whom the drug is prescribed; (B) address and telephone number of the patient; (C) patient's age or date of birth; (D) patient's gender; (E) any known allergies, drug reactions, idiosyncrasies, and chronic conditions or disease states of the patient and the identity of any other drugs currently being used by the patient which may relate to prospective drug review; (F) pharmacist's comments relevant to the individual's drug therapy, including any other information unique to the specific patient or drug; and (G) a list of all prescription drug orders dispensed (new and refill) to the patient by the pharmacy during the last two years. Such list shall contain the following information: (i) date dispensed; (ii) name, strength, and quantity of the drug dispensed; (iii) prescribing practitioner's name; (iv) unique identification number of the prescription; and (v) name or initials of the dispensing pharmacists. (4) A patient medication record shall be maintained in the pharmacy for two years. If patient medication records are maintained in a data processing system, all of the information specified in this subsection shall be maintained in a retrievable form for two years and information for the previous 12 months shall be maintained on-line. (5) 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. (d) Prescription drug order records maintained in a manual system. (1)-(4) (No change.) (e) Prescription drug order records maintained in a data processing system. (1)-(5) (No change.) (f) Limitation to one type of record keeping system. When filing prescription drug order information a pharmacy may use only one of the two systems described in subsection (d) or (e) of this section. (g) Distribution of controlled substances to another registrant. A pharmacy, may distribute controlled substances to a practitioner, another pharmacy or other registrant, without being registered to distribute, under the following conditions: (1)-(4) (No change.) (h) Other records. Other records to be maintained by a pharmacy: (1)-(10) (No change.) (i) Permission to maintain central records. Any pharmacy that uses a centralized recordkeeping system for invoices and financial data shall comply with the following procedures. (1)-(4) (No change.) (j) Ownership of pharmacy records. For the purposes of these sections, a pharmacy licensed under the Act is the only entity which may legally own and maintain prescription drug records. (k) Confidentiality. A pharmacist shall provide adequate security of prescription drug order and patient medication records to prevent indiscriminate or unauthorized access to confidential health information. 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)-(8) (No change.) (9) Confidential health information-Any health related information maintained by the pharmacy in the patient's records, is privileged and may be released only to: (A) the patient, or as the patient directs; (B) those health care professionals where, in the pharmacist's professional judgment, such release is necessary to protect the patient's health and well being; or (C) other such persons or governmental agencies authorized by law to receive such confidential information. (10) 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). (11) Cytotoxic-A pharmaceutical that has the capability of killing living cells. (12) 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)-(B) (No change.) (13) 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. (14) Designated agent-An individual under the supervision of a practitioner, designated by the practitioner, and for whom the practitioner assumes legal responsibility, who communicates the practitioner's instructions to the pharmacist. (15) 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. (16) 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. (17) Distribute-The delivery of a prescription drug or device other than by administering or dispensing. (18) Downtime-Period of time during which a data processing system is not operable. (19) Enteral-Within or by the way of the intestine. (20) Facsimile (FAX) prescription drug order-A prescription drug order which is transmitted by an electronic device which sends an exact image to the receiver (pharmacy) over telephone lines. (21) 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. (22) Hard-copy-A physical document that is readable without the use of a special device (i.e., cathode ray tube (CRT), microfiche reader, etc). (23) Medical Practice Act-The Texas Medical Practice Act, Texas Civil Statutes, Article 4495b, as amended. (24) New prescription drug order-A prescription drug order for a drug not previously taken by the patient. (25) Original prescription-The: (A)-(C) (No change.) (26) Parenteral-Sterile preparations of drugs for injection through one or more layers of the skin. (27) Part-time pharmacist-A pharmacist who works less than full-time. (28) 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. (29) 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. (30) 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. (31) Practitioner- (A)-(D) (No change.) (32) 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. (33) Prescription drug- (A)-(C) (No change.) (34) Prescription drug order- (A)-(B) (No change.) (35) Registered nurse-A registered nurse recognized by the Texas State Board of Nurse Examiners as having the specialized education and training necessary to carry out a prescription drug order and issued an identification number by the Texas State Board of Nurse Examiners. (36) Sterile pharmaceutical-A dosage form free from living micro-organisms. (37) Supportive personnel-Those individuals utilized in pharmacies whose responsibility it shall be to provide nonjudgmental technical services concerned with the preparation and distribution of drugs under the direct supervision of and responsible to a pharmacist. (38) Texas Controlled Substances Act-The Texas Controlled Substances Act, Health and Safety Code, Chapter 481, as amended. (c) Personnel. (1) Pharmacist-in-charge. (A) (No change.) (B) Responsibilities. The pharmacist-in-charge shall have the responsibility for, at a minimum, the following: (i)-(ii) (No change.) (iii) assuring that a pharmacist communicates to the patient or the 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 subsection (c)(3) of this section; (iv) assuring that a pharmacist communicates to the patient or the patient's agent on his or her request, concerning any prescription drugs dispensed to the patient by the pharmacy; (v) assuring that a reasonable effort is made to obtain, record, and maintain patient medication records; (vi) education and training of pharmacy supportive personnel; (vii) establishment of policies for procurement of prescription drugs and devices and other products dispensed from the Class A pharmacy; (viii) disposal and distribution of drugs from the Class A pharmacy; (ix) bulk compounding of drugs; (x) preparation and sterilization of sterile pharmaceuticals compounded within the pharmacy; (xi) admixture of sterile pharmaceuticals, including education and training of personnel concerning incompatibility; (xii) participation in those aspects of the patient care evaluation program relating to pharmaceutical material utilization and effectiveness; (xiii) implementation of the policies and decisions relating to pharmaceutical services; (xiv) storage of all materials, including drugs, chemicals, and biologicals; (xv) maintaining records of all transactions of the Class A pharmacy necessary to maintain accurate control over and accountability for all pharmaceutical materials required by applicable state and federal laws and rules; (xvi) establishment and maintenance of effective controls against the theft or diversion of prescription drugs, and records for such drugs; (xvii) maintenance of records in a data processing system such that the data processing system is in compliance with this section; (xviii) assuring that the pharmacy has a system to dispose of cytotoxic/biohazardous waste in a manner so as not to endanger the public health; and (xviv) legal operation of the pharmacy, including meeting all inspection and other requirements of all state and federal laws or rules governing the practice of pharmacy. (2) Pharmacists. (A) (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; (v) affixing the label to the prescription container and performing the final check of the dispensed prescription before delivery to the patient; (vi) 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 subsection (c)(3) of this section; (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; and (viii) assuring that a reasonable effort is made to obtain, record, and maintain patient medication records. (C) (No change.) (3) -(4) (No change.) (d) Operational standards. (1) (No change.) (2) Environment. (A) General requirements. (i) -(vi) (No change.) (vii) If prescription drug orders are delivered to the patient at the pharmacy, beginning January 1, 1995, the pharmacy shall contain an area which is suitable for confidential patient counseling. (B)-(C) (No change.) (3) Prescription dispensing and sdelivery. (A) Patient counseling and provision of drug information. (i) To optimize drug therapy, a pharmacist shall communicate to the patient or the patient's agent, information about the prescription drug or device which in the exercise of the pharmacist's professional judgement the pharmacists deems significant, such as the following: (I) the name and description of the drug or device; (II) dosage form, dosage, route of administration, and duration of drug therapy; (III) special directions and precautions for preparation, administration, and use by the patient; (IV) common severe side or adverse effects or interactions and therapeutic contraindications that may be encountered, including their avoidance, and the action required if they occur; (V) techniques for self monitoring of drug therapy; (VI) proper storage; (VII) refill information; and (VIII) action to be taken in the event of a missed dose. (ii) Such communication: (I) shall be provided with each new prescription drug order, and if the pharmacist deems appropriate, with prescription drug order refills; (II) shall be provided for any prescription drug order dispensed by the pharmacy on the request of the patient or patient's agent; (III) shall be communicated orally in person unless the patient or patient's agent is not at the pharmacy or a specific communication barrier prohibits such oral communication; and (IV) may be reinforced with written information when deemed appropriate by the pharmacist. Beginning September 1, 1993, the communication shall be reinforced with written information. (iii) Nothing in this subparagraph shall be construed as requiring a pharmacist to provide consultation when a patient or patient's agent refuses such consultation. The pharmacist shall document such refusal for consultation. (iv) In addition to the requirements of clauses (i)-(iii) of this subparagraph, if a prescription drug order is delivered to the patient at the pharmacy, the following is applicable. (I) So that a patient will have access to information concerning his or her prescription, a prescription may not be delivered to a patient unless a pharmacist is in the pharmacy, except as provided in subclause (II) of this clause. (II) An agent of the pharmacist may deliver a prescription drug order to the patient or his or her agent during short periods of time when a pharmacist is absent from the pharmacy, provided the short periods of time do not exceed two hours, and provided a record of the delivery is maintained containing the following information: (-a-)-(-e-) (No change.) (III) Any prescription delivered to a patient when a pharmacist is not in the pharmacy must meet the requirements described in clause (v) of this subparagraph. (IV) A Class A pharmacy compounding sterile pharmaceuticals that delivers prescriptions to patients or their agents on-site shall make available for use by the public, a current or updated edition of the United States Pharmacopeia Dispensing Information, Volume II (Advice to the Patient), or, another source of such information, such as patient information leaflets. (v) In addition to the requirements of clauses (i)-(iii) of this subparagraph, if a prescription drug order is delivered to the patient or his or her agent at the patient's residence or other designated location, the following is applicable: (I) the information specified in clause (i) of this subparagraph shall be delivered with the dispensed prescription in writing; (II) if prescriptions are routinely delivered outside the area covered by the pharmacy's local telephone service, the pharmacy shall provide a toll-free telephone line which is answered during normal business hours to enable communication between the patient and a pharmacist; (III) the pharmacist shall place on the prescription container or on a separate sheet delivered with the prescription container in both English and Spanish the local and if applicable, toll-free telephone number of the pharmacy and the statement: Written information about this prescription has been provided for you. Please read this information before your take the medication. If you have questions concerning this prescription, a pharmacist is available during normal business hours to answer these questions; (IV) the pharmacist-in-charge shall assure that: (-a-)-(-b-) (No change.) (vi) The provisions of this subparagraph do not apply to patients in facilities where drugs are administered to patients by a person authorized to do so by the laws of the state (i.e., nursing homes). (B)-(C) (No change.) (4)-(6) (No change.) (7) Patient medication records. A patient medication record shall be maintained for each patient of the pharmacy. The PMR shall contain at a minimum the following: (A) patient information: (i) patient's full name, gender, and date of birth; (ii)-(iv) (No change.) (v) other drugs the patient is receiving; (vi) (No change.) (viii) pharmacist's comments relevant to the individual's drug therapy, including any other information unique to the specific patient or drug; and (viii) a list of all prescription drug orders dispensed (new and refill) to the patient by the pharmacy during the last two years. Such list shall contain the following information: (I) date dispensed; (II) name, strength, and quantity of the drug dispensed; (III) prescribing practitioner's name; (IV) unique identification number of the prescription; and (V) name or initials of the dispensing pharmacist. (B) (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.) (e) Records. (1)-(10) (No change.) (11) Confidentiality. A pharmacist shall provide adequate security of prescription drug order and patient medication records to prevent indiscriminate or unauthorized access to confidential health information. (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 December 1, 1992. TRD-9216014 Fred S. Brinkley, Jr., R.Ph., M.B.A. Executive Director/Secretary Texas State Board of Pharmacy Effective date: January 1, 1993 Proposal publication date: August 25, 1992 For further information, please call: (512) 832-0661 Part XXIX. Texas Board of Professional Land Surveying Chapter 661. General Rules of Procedures and Practices Contested Case 22 TAC sec.661.91 The Texas Board of Professional Land Surveying adopts an amendment to sec.661.91, concerning contested case, without changes to the proposed text as published in the October 16, 1992, issue of the Texas Register (17 TexReg 7154). This section will clarify that the agency may assess the cost of the transcript to one or more of the parties. The Board has been assessing the cost for transcripts to the guilty party through existing APTRA language. This rule merely puts this APTRA language into the Board's rules. Operations of the Board will not change. No comments were received regarding adoption of the amendment. The amendment is adopted under Texas Civil Statutes, Article 5282c, sec.9, which provide the Texas Board of Professional Land Surveying with the authority to make and enforce all reasonable and necessary rules, regulations, and bylaws not inconsistent with the Texas Constitution, the laws of this state, and this Act. 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 November 30, 1992. TRD-9216013 Sandy Smith Executive Director Texas Board of Professional Land Surveying Effective date: December 22, 1992 Proposal publication date: October 16, 1992 For further information, please call: (512) 452-9427 TITLE 25. HEALTH SERVICES Part I. Texas Department of Health Chapter 38. Chronically Ill and Disabled Children's Services 25 TAC sec.38.3 The Texas Department of Health (department) adopts an amendment to sec.38.3, concerning Chronically Ill and Disabled Children's (CIDC) Services, with changes to the proposed text as published in the October 6, 1992, issue of the Texas Register (17 Tex Reg 6854). The amendment is to paragraph (1)(B) concerning CIDC medical eligibility criteria. The amendment will correct oversights; insert International Classification of Diseases (ICD-9) code revisions; move CIDC conditions listed in Priority 1 into full CIDC coverage; and make editorial changes to correct text errors. No comments were received concerning the proposed amendment; however, a CIDC staff person noted that the description of the medical condition coded as 212.0, 212.1, 212.2, 212.3 was incorrectly titled. The department has changed the description from "Recurrent laryngeal papilloma (only)" to "Recurrent papilloma of the respiratory organs (only)." The amendment is adopted under the Health and Safety Code, Chapter 35, which provides the Texas Board of Health with the authority to adopt rules concerning the Chronically Ill and Disabled Children's (CIDC) Services Program; and sec.12.001 which provides the Texas Board of Health with the authority to adopt rules for the performance of every duty imposed by law on the Texas Board of Health, the Texas Department of Health, and the Commissioner of Health. The amendment will affect the Health and Safety Code, Chapter 35. sec.38.3. Eligibility for Client Services. In order for an individual to be eligible for the Chronically Ill and Disabled Children's Services (CIDC) Program, the individual must meet the medical, financial, and other criteria in this section. (1) Medical criteria. (A) (No change.) (B) Coverable conditions. The Texas Department of Health, with approval by the Texas Board of Health, shall use the following medical criteria to determine CIDC Program eligibility. [graphic] (2)-(9) (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 November 30, 1992. TRD-9215938 Robert A. MacLean, M.D. Deputy Commissioner Texas Department of Health Effective date: December 21, 1992 Proposal publication date: October 6, 1992 For further information, please call: (512) 458-7355 Chapter 141. Massage Therapists 25 TAC sec.sec.141.3, 141.5, 141.6, 141.10, 141.11, 141.14, 141.15, 141.19 The Texas Department of Health (department) adopts amendments to sec.sec.141.3, 141. 5, 141.6, 141.10, 141.11, 141.14, 141.15, and 141.19, concerning the regulation of massage therapists, massage schools, massage therapy instructors, and massage establishments. Section 141.15 is adopted with changes to the proposed text as published in the September 1, 1992, Texas Register (17 Texas Register 5995). The other sections are adopted without changes and will not be republished. The amendments establish fees for review of examination results; waive the five year time limit on education for certain licensed professionals and instructors; establish a procedure for reviewing examination results; require individuals who practice under assumed names to register as massage establishments; exempt massage therapy schools, as massage establishments; and include various minor changes which clarify meaning without substantial change, improve grammar and style, and clarify inconsistencies in the rules. No comments were received, however changes recommended by the Texas Board of Health were incorporated in sec.141.15. The amendments are adopted under Texas Civil Statutes, Article 4512k, sec.7, which provides the Texas Board of Health with the authority to adopt rules concerning the regulation and registration of massage therapists, massage instructors, massage schools, and massage establishments; and the Health and Safety Code, sec.12.001 which provides the Texas Board of Health with the authority to adopt rules for the performance of every duty imposed by law on the Texas Board of Health, the Texas Department of Health, and the commissioner of health. sec.141.15. Massage Establishment Registration and Renewal. (a) -(l) (No change.) (m) Exempt organizations and exemption procedures are as follows. (1) The following establishments are specifically exempt from the provisions of the Act regulating massage establishments: (A) (No change.) (B) a registered massage therapist who practices as a solo practitioner in that therapist's legal name, not an assumed name; (C)-(G) (No change.) (H) an establishment owned or operated by the federal government, the state, a political subdivision of the state or a municipality; (I) an establishment which is operational for a period of time of no more than 24 hours in a calendar year and in which the provision of massage therapy services is incidental to the primary athletic, fund raising, or other purpose of the event sponsored by the establishment; or (2)-(4) (No change.) (n)-(p) (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 November 30, 1992. TRD-9215939 Robert A. MacLean, M.D. Deputy Commissioner Texas Department of Health Effective date: December 21, 1992 Proposal publication date: September 1, 1992 For further information, please call: (512) 834-6601 ) Chapter 143. Medical Radiologic Technologists The Texas Department of Health (department) adopts amendments to existing sec.143.3, sec.143.10 and sec.143.11; the repeal of existing sec.143.14; and new sec.143.14, concerning medical radiologic technologists. Section sec.143.11 is adopted with changes to the proposed text as published in the September 1, 1992, issue of the Texas Register (17 TexReg 5997). Sections sec.sec.143.3, sec.143.10 and sec.143.14 are adopted without changes and will not be republished. The amendments elaborate and clarify existing procedures and provide for additional administrative procedures. The repeal of existing sec.143.14 and adoption of new sec.143.14 provide a new section which has been expanded, rewritten, reorganized, and clarified. The summary of comments received and the agency's responses are as follows. COMMENT: In sec.143.3(d)(10), a commenter felt that it was unnecessary for the rules to prescribe the composition and titles of various committees. RESPONSE: The department's response is that the advisory board believes that the establishment of committees by rule ensures that medical radiologic technologists would always be represented on each committee. Further, it is important for technologists to know that there are standing committees where their concerns, questions, and comments can be heard. The committees provide needed continuity and structure to the advisory board. COMMENT: Regarding sec.143.3(d)(10), another commenter expressed a concern that a majority of committee members should be medical radiologic technologists. RESPONSE: The department made no changes regarding committee membership and feels that the percentage of technologists on the committees under the amended rule, which ranges from 50% to 67%, is adequate. COMMENT: Concerning sec.143.11(b)(2), an individual questioned why a medical radiologic technologist must complete 24 hours of continuing education during a biennial renewal period when registered nurses are required to complete only 20 hours. RESPONSE: The department made no changes as the number of hours required has been in place since 1988 and the department did not propose to amend the hours; therefore, the comment is not accepted for rule change. COMMENT: An individual remarked that instructor-directed continuing education activities required in sec.143.11(b)(5) are a financial burden on the medical radiologic technologist. RESPONSE: The department made no change because continuing education opportunities exist which are provided at little or no cost to the technologist such as: speakers at monthly society/association meetings and inservice education offered by hospitals which are Joint Commission-Accredited or Medicare Certified. COMMENT: Concerning sec.143.11(c)(1), an individual requested that the 50% requirement for continuing education directly related to the application of ionizing radiation be dropped after the medical radiologic technologist's first mandatory reporting period. The commenter requested that technologists be able to earn all the hours in their specialty areas. RESPONSE: The department does not accept the comment for a rule change because the purpose of the Medical Radiologic Technologist Certification Act is to protect the citizens of Texas from the hazards of ionizing radiation and no specialty certificates are authorized by the Act. Under the amendment set out in sec.143.11(j)(2), a technologist who only performs radiologic procedures which utilize non-ionizing forms of radiation (ultrasound, magnetic resonance imaging) may request an exemption from the continuing education requirements. COMMENT: Regarding sec.143.11(e)(1), a commenter asked why only three (3) hours of continuing education credit is allowed for a medical radiologic technologist who successfully completes an Advanced Cardiac Life Support (ACLS) course. The commenter remarked that registered nurses earn 14.6 hours and are not required to pass the course. RESPONSE: The department made no changes as the number of credits for ACLS that a technologist may earn has been in place since 1988 and the department did not propose to amend the credits. COMMENT: One commenter asked that the term "related" not be replaced by the word "germane" in sec.143.11(e)(2). RESPONSE: The department agrees and has retained the original language. COMMENT: Regarding sec.143.11(h)(6), a commenter questioned the wording of the amendment, as subsection (b)(2) and (3) of the section does not speak to a limit. The commenter asked if the reference should be to subsection (c)(3) and if the limit should be 25%. RESPONSE: The department agrees with the commenter's concerns and questions and has made a correction. COMMENT: Regarding sec.143.11, two commenters asked that continuing education credit be given to a technologist who passes an advanced level examination or examination(s) in a second or third discipline of radiologic technology. RESPONSE: The department agrees with the comment. A new paragraph (7) has been added in sec.143.11(j) exempting a technologist from the continuing education requirements for passing an examination during a continuing education period. The examination must be in an area pertaining to ionizing forms of radiation and must be approved by the Department. COMMENT: Regarding sec.143.14(g), a commenter asked why the department proposed charging the medical radiologic technologist with a Class B misdemeanor instead of revoking a certificate for failure to complete the continuing education requirements. RESPONSE: The department's response is that the penalty is statutory and applies to a person who continues to administer a radiologic procedure to another person after the technologist's certificate expires or is revoked due to non-compliance with the continuing education requirements. All commenters were individuals who were neither for or against the proposed amendments and new section in their entirety; however, they had questions and concerns and offered suggestions regarding changes. 25 TAC sec.sec.143.3, 143.10, 143.11 The amendments are adopted under Texas Civil Statutes, Article 4512m, sec.2.05, which provide the Texas Board of Health with the authority to adopt rules establishing the minimum standards for the certification of medical radiologic technologists; and the Health and Safety Code, sec.12.001, which provides the Texas Board of Health with the authority to adopt rules for the performance of every duty imposed by law on the Texas Board of Health, the Texas Department of Health, and the commissioner of health. sec.143.11 Continuing Education Requirements. (a) (No change.) (b) General. Continuing education requirements for recertification shall be fulfilled during each biennial renewal period beginning on the first day of the month following each MRT's or LMRT's birth month and ending on the last day of each MRT's or LMRT's birth month two years hence. (1) The initial continuing education period shall begin on the first day of the MRT's or LMRT's first biennial renewal period. Each subsequent period shall begin on the first day of the next biennial renewal period. (2) An MRT must complete 24 contact hours of continuing education acceptable to the department during each biennial renewal period. A contact hour shall be defined as 50 minutes of attendance and participation. (3) An LMRT must complete 12 contact hours of continuing education acceptable to the department during each biennial renewal period. A contact hour shall be defined as 50 minutes of attendance and participation. The continuing education activities must be general radiation health and safety topics or germane to the categories of limited certificate held. (4) (No change.) (5) At least 50% of the required number of hours shall be satisfied by attendance and participation in instructor-directed activities. (6) No more than 50% of the required number of hours may be satisfied through verifiable independent self-study. These activities include reading materials, audio materials, audiovisual materials or a combination thereof which meet the requirements set out in subsection (d) of this section. (7) An MRT or LMRT who also holds a current Texas license/registration/certification in another health profession may satisfy the continuing education requirement for renewal of the MRT or LMRT with hours counted toward renewal of the other license, registration, or certification provided the hours meet all the requirements of this section. (8) Persons who hold temporary certificates, either general or limited, are not subject to these continuing education requirements. (c) Content. All continuing education activities should provide for the professional growth of the technologist. (1) At least 50% of the required number of hours must be activities which are directly related to the use and application of ionizing forms of radiation to human beings for medical purposes. (2) No more than 50% of the required number of hours may be satisfied by completing or participating in learning activities which are related to the use and application of non-ionizing forms of radiation for medical purposes. (3) No more than 25% of the required number of hours may be satisfied by completing or participating in learning activities which are indirectly related to radiologic technology. For the purposes of this section, indirectly related topics include, but are not limited to, computer science, computer literacy, introduction to computers or computer software, physics, human behavioral sciences, mathematics, communication skills, public speaking, technical writing, management, administration, accounting, ethics, adult education, medical sciences, and health sciences. Other courses may be accepted for credit provided there is a demonstrated benefit to patient care. (d) Types of acceptable continuing education. Continuing education shall be acceptable if the experience or activity is at least 30 consecutive minutes in length and; (1) is offered for semester hour or quarter hour credit by an institution accredited by a regional accrediting organization such as the Southern Association of Colleges and Schools and is directly or indirectly related to the disciplines of radiologic technology as specified in subsection (b) of this section; or (2) is offered for continuing education credit by an institution accredited by the Committee on Allied Health Education and Accreditation (CAHEA) or the Commission on Dental Accreditation of the American Dental Association or the Council on Chiropractic Education (CCE) and is directly or indirectly related to the disciplines of radiologic technology; or (3) is an educational activity which meets the following criteria: (A) the content applies directly or indirectly to the disciplines of radiologic technology or is specific to the category of the limited certificate held by the LMRT; and (B) is approved, recognized, accepted, or assigned continuing education credits by professional organizations or associations, or offered by a federal, state, or local governmental entity. A list is available from the department upon request. (e) Additional acceptable activities. The additional activities for which continuing education credit will be awarded are as follows: (1) successful completion or recertification in a cardiopulmonary resuscitation course, basic cardiac life support course or advanced cardiac life support course during the continuing education period. Such successful completion or recertification shall be limited to not more than three hours credit during a renewal period; (2) attendance and participation in inservice education and training offered or sponsored by Joint Commission on Accreditation of Healthcare Organizations (JCAHO) -accredited or Medicare certified hospitals, provided the education/training is properly documented and is related to the profession of radiologic technology; (3) teaching in a program described in subsection (d) of this section which shall be limited to one contact hour of credit for each hour of instruction per topic item once during the continuing education period for up to a total of five hours; or (4) developing and publishing a manuscript related to radiologic technology which shall be limited to five contact hours of credit during a continuing education period. Upon audit by the department the MRT must submit a letter from the publisher indicating acceptance of the manuscript for publication or a copy of the published work. (f) Reporting of continuing education. Each MRT or LMRT is responsible for and shall complete and file with the department at the time of renewal a continuing education report form approved by the department for each activity for which credit is claimed. (1) Following each renewal month, the department will select a random sample from the list of technologists renewing that month to verify compliance with the continuing education requirements. The technologists selected in the random sample shall submit within 30 days following notification from the department: (A) documentation of participation in and completion of continuing education acceptable to the department; and (B) any additional information or documentation deemed necessary by the department to verify the technologist's compliance with the continuing education requirements. (2) The department shall notify the technologist of the results of the verification process. (3) If the department determines that the technologist failed to successfully complete the continuing education requirements, the technologist shall be granted a 120-day extension period in which to complete the continuing education hours needed to fulfill the requirements. (g) Determination of contact hour credits. The department shall credit continuing education experiences and activities as follows. (1) Semester hour or quarter hour credits as set in subsection (d)(1) of this section shall be credited on the basis of 15 contact hour credits for each semester hour and 10 contact hour credits for each quarter hour successfully completed with a grade of "C" or better, evidenced by an official transcript. (2) Activities or experiences as set out in subsection (d)(2) and (3) of this section shall be credited on a one-for-one basis with one contact hour credit for each contact hour of attendance and participation. (h) Activities unacceptable as continuing education. The department shall not grant credit for: (1) education incidental to the regular professional activities of an MRT or LMRT such as learning from experience or research; (2) organizational activity such as serving on committees or councils or as an officer in a professional association, society, or other organization; (3) any activities completed before or after the two-year continuing education period for which the credit is submitted; (4) verifiable independent study activities which have no post-test or other measurement or evaluation instrument provided; (5) verifiable independent study activities which exceed 50% of the clock hour requirements as set out in subsection (b)(2) and (3) of this section; (6) learning activities indirectly related to radiological technology which exceed 25% of the contact hour requirement as set out in subsection (c)(3) of this section; (7) learning activities which are related to non-ionizing forms of radiation in excess of the 50% of the contact hour requirements as set out in subsection (b)(2) and (3) of this section; (8) any activities or experiences which do not meet the criteria set out in subsection (d)(e) of this section; (9) activities in accordance with subsection (e)(1) of this section which are repeated during the renewal period or hours in excess of three hours per renewal period; (10) activities in accordance with subsection (e)(3) of this section in excess of the one time credit per topic of instruction or in excess of a total of five contact hours during a continuing education period; or (11) activities in accordance with subsection (e)(4) of this section in excess of five contact hours during a continuing education period. (i) Failure to complete the required continuing education. (1) An MRT or LMRT who has failed to complete the requirements for continuing education may be granted a 120-day certificate as described in sec.143.10(e)(8) of this title (relating to Certificates, Renewals, and Late Renewals). The 120- day extension is the maximum that shall be granted and there will be no exceptions, nor may an additional extension period be granted. (2) The next continuing education reporting period shall commence on the day following the completion of continuing education credits to correct the deficiency and shall end two years from the date the previous renewal period ended. In other words, the extension period is borrowed from the next reporting period. (3) An MRT or LMRT who has not corrected the deficiency by the expiration date of the 120-day certificate shall be considered as non-compliant with the renewal requirements. (j) Exemptions. The department will consider granting an exemption from the continuing education requirement on a case-by-case basis if: (1) a technologist completes and forwards to the department a sworn affidavit indicating retirement status for the entire renewal period for which the exemption is requested. A technologist who has been granted this exemption and who desires to resume performing radiologic procedures shall be required to accrue continuing education hours missed as a result of the exemption, subject to a maximum of 24 hours. These hours shall be accrued during the six-month period immediately following the technologist's return to performing radiologic procedures; (2) a technologist completes and forwards to the department a sworn affidavit indicating that the technologist is employed but does not perform radiologic procedures for the entire renewal period. A technologist who has been granted this exemption and who desires to resume performing radiologic procedures shall be required to accrue continuing education hours missed as a result of the exemption, subject to a maximum of 24 hours. These hours shall be accrued during the six-month period immediately following the technologist's return to performing radiologic procedures; (3) a technologist is a nonresident of Texas for the entire renewal period and submits a sworn statement that the continuing education requirements of the resident state or country have been met; (4) a technologist shows reasons of health, certified by a licensed physician, that prevent compliance with the continuing education requirement for the entire renewal period. The technologist must complete and forward to the department a sworn affidavit and provide documentation that clearly establishes the period of disability and resulting physical limitations; (5) a technologist submits a sworn statement and shows reason which prevents compliance and the reason is acceptable to the department; or (6) a technologist is called to or on active duty with the armed forces of the United States for the entire renewal period and so long as the technologist does not administer a radiologic procedure in a setting outside of the active duty responsibilities during the time on active duty. The technologist must file a copy of orders to active military duty with the department; or (7) a technologist submits proof of successful completion of an advanced level examination or an entry level examination in another discipline of radiologic technology administered by or for the ARRT during the renewal period. All examinations shall be topics dealing with ionizing forms of radiation administered to human beings for medical purposes. (k) Denial of request for exemption. A technologist whose request for exemption is denied by the department may be granted a 120-day extension to complete the continuing education requirements and may request a hearing on the denial within 30 days after the date the department notified the technologist of the denied exemption. If no hearing is requested in writing within 30 days, the opportunity for hearing shall be waived. 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 November 25, 1992. TRD-9215935 Robert A. MacLean, M.D. Deputy Commissioner Texas Department of Health Effective date: December 21, 1992 Proposal publication date: September 1, 1992 For further information, please call: (512) 834-6617 25 TAC sec.143.14 The repeal is adopted under Texas Civil Statutes, Article 4512m, sec.2.05, which provide the Texas Board of Health with the authority to adopt rules establishing the minimum standards for the certification of medical radiologic technologist; and the Health and Safety Code, sec.12.001, which provides the Texas Board of Health with the authority to adopt rules for the performance of every duty imposed by law on the Texas Board of Health, the Texas Department of Health, and the commissioner of health. sec.143.14. Violations and Subsequent Actions. 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 November 25, 1992. TRD-9215937 Robert A. MacLean, M.D. Deputy Commissioner Texas Department of Health Effective date: December 21, 1992 Proposal publication date: September 1, 1992 For further information, please call: (512) 834-6617 The new section is adopted under Texas Civil Statutes, Article 4512m, sec.2.05, which provide the Texas Board of Health with the authority to adopt rules establishing the minimum standards for the certification of medical radiologic technologist; and the Health and Safety Code, sec.12.001, which provides the Texas Board of Health with the authority to adopt rules for the performance of every duty imposed by law on the Texas Board of Health, the Texas Department of Health, and the commissioner of health. 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 November 25, 1992. TRD-9215936 Robert A. MacLean, M.D. Deputy Commissioner Texas Department of Health Effective date: December 21, 1992 Proposal publication date: September 1, 1992 For further information, please call: (512) 834-6617 Chapter 169. Veterinary Public Health Transporting Dead Animals The Texas Department of Health (department) adopts new sec.169.2 and sec.169.13, concerning Veterinary Public Health, without changes to the text as published in the September 4, 1992 (17 TexReg 6090). Specifically, the new sections establish the criteria and procedures for the Commissioner of Health to assess an administrative penalty when a person violates the Health and Safety Code, Chapter 144 (Texas Renderers' Licensing Act), or when a person violates Chapter 433 (Texas Meat and Poultry Inspection Act), Texas Board of Health rules adopted under either chapter, or an order or license issued under either chapter. The new sections are being adopted in order to implement the provisions of House Bill 2224, 72nd Legislature, 1991. There were no comments received concerning the proposed new sections. 25 TAC sec.169.2 The new section is adopted under the Health and Safety Code, sec.144.081 concerning the assessment of administrative penalties; sec.144.074 which provides the Texas Board of Health with authority to adopt rules to implement Chapter 144 of the Code; and sec.12.001 which provides the Texas Board of Health with authority to adopt rules to implement every duty imposed by law on the board, the department, and the commissioner of health. 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 November 30, 1992. TRD-9215940 Robert A. MacLean, M.D. Deputy Commissioner Texas Department of Health Effective date: December 21, 1992 Proposal publication date: September 4, 1992 For further information, please call: (512) 458-7422 Meat and Poultry Inspection 25 TAC sec.169.13 The new section is adopted under the Health and Safety Code, sec.433.094 concerning the assessment of administrative penalties and sec.433.008 which provides the Texas Board of Health with authority to adopt rules to implement Chapter 433 of the Code; and sec.12.001 which provides the Texas Board of Health with authority to adopt rules to implement every duty imposed by law on the board, the department, and the commissioner of health. 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 November 30, 1992. TRD-9215941 Robert A. MacLean, M.D. Deputy Commissioner Texas Department of Health Effective date: December 21, 1992 Proposal publication date: September 4, 1992 For further information, please call: (512) 458-7422 Part II. Texas Department of Mental Health and Mental Retardation Chapter 401. System Administration Subchapter B. Interagency Agreements 25 TAC sec.401.53 The Texas Department of Mental Health and Mental Retardation adopts amendments to Exhibit J, which is adopted by reference in sec.401.53, without revisions to the text as proposed in the August 28, 1992, issue of Texas Register (17 TexReg 5930). The amendments expand the plan to incorporate a projected need for 30 beds for individuals with a related condition (RC). The expansion of the bed plan was approved by the Interagency Council on ICF/MR Facilities at its August 4, 1992 meeting. No comments were received regarding adoption of the amendment. The amendments to the exhibit are adopted under Title 7 of the Health and Safety Code, sec.533.062, which requires the bed plan to be adopted by rule, and sec.532.015 which provides the Texas Board of Mental Health and Mental Retardation with rulemaking powers. 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 December 1, 1992. TRD-9215995 Ann Utley Chairman, Texas Board of Mental Health and Mental Retardation Texas Department of Mental Health and Mental Retardation Effective date: December 22, 1992 Proposal publication date: August 28, 1992 For further information, please call: (512) 465-4670 TITLE 28. INSURANCE Part I. Texas Department of Insurance Chapter 7. Corporate and Financial Regulation Subchapter D. Risk-Based Capital and Surplus 28 TAC sec.7.401 The State Board of Insurance of the Texas Department of Insurance adopts new sec.7.401 concerning the regulation of risk-based capital and surplus requirements for life insurance companies, fraternal benefit societies, mutual life insurance companies, and stipulated premium companies. Section 7.401 is adopted with changes to the proposed text as published in the July 28, 1992, issue of the Texas Register (17 TexReg 5262). Section 7.401 concerns the minimum risk-based capital and surplus requirements for all life insurance companies, fraternal benefit societies, mutual life insurance companies, and stipulated premium companies. The new section requires a minimum level of capital and surplus to absorb the financial, underwriting, and investment risks assumed by an insurer. It also sets forth the formulas which the agency will use in calculating the risk-based capital and surplus of an insurer. The adoption includes several changes to the proposed text for the reasons stated in this paragraph. This adoption includes the addition of the terms "accidental death and dismemberment", "affiliated", "dental", "disability income", "hospital indemnity", "medicare supplement", "noncancellable", and "usual and customary medical and hospitalization" to subsection (a) to clarify the use of the terms throughout the section and the following paragraphs were renumbered accordingly. Changes were made to sec.7.401(a)(2), (4), and (7) by renumbering to paragraphs (4), (6), and (12) respectively and to clarify that the board may periodically adopt various changes and definitions suggested by the NAIC. Changes were made to subsection (c) to clarify when AVR and IMR will be used in determining the adequacy of an insurer's capital and surplus. The term "enumeration" was changed in subsection (d)(2) to "product". Changes were made to subsection (d)(2)(A) by adding two options as clauses (i) and (ii) for calculation of affiliate investments. Changes were made to subsection (d)(2)(C) to clarify which form it applied to and to add clauses (i) and (ii) which are options for calculation of the business risk. A new subsection (d)(2)(D) was added to explain the application of Formula 3 to Form RBC/FRAT and to add two options as clauses (i) and (ii) for calculation of the business risk for fraternals. The remaining subparagraphs were renumbered appropriately. A new subsection (d)(2)(J) was added to clarify the Board's ability to adopt amendments to the section if the NAIC promulgates a model act on risk-based capital and surplus for life, health and accident insurers. Changes were made to subsections (e) and (f) to include the annual statement date, the company name, and the NAIC number. Changes were made in the description line to change the "amount" column to "factor". Changes were made to the factors used in subsections (e) and (f), Formula #1-Asset Value Risk, 1a Bonds, by changing the factors to the NAIC factors. Changes were made to subsections (e) and (f), Formula #1-Asset Value Risk, 1b Preferred Stocks, to include Option 1 and Option 2. Changes were made to subsections (e) and (f), Formula #1-Asset Value Risk, 1b, Preferred Stocks, option 1(ii), Unaffiliated, to correct the annual statement source from page 48 to page 47. The factors used were also changed to use the NAIC factors. Option 2 was added to incorporate the NAIC formula for affiliated and unaffiliated preferred stocks. Notes were added to subsections (e) and (f), Formula #1-Asset Value Risk, 1b Preferred Stocks, to include the use of the minimum risk-based capital calculated in accordance with 28 TAC sec.7.401 and 28 TAC sec.7.410 for affiliated U.S life and P/C insurers. Changes were made to subsections (e) and (f), Formula #1-Asset Value Risk, 1c, Mortgage Loans by updating the formula to resemble the NAIC risk-based formula for mortgage loans. The Texas risk-based formulas for mortgage loans were segregated into residential, farm, and commercial mortgage loans with appropriate factors applied. Changes were made to subsections (e) and (f), Formula #1-Asset Value Risk, 1d Common Stocks, to include Option 1 and Option 2. Changes were made to subsections (e) and (f), Formula #1-Asset Value Risk, 1d, Common Stocks, Option 1(ii), Unaffiliated, to correct the annual statement source to include lines 44 and 48. Option 2 was added to incorporate the NAIC formula for affiliated and unaffiliated common stocks. Notes were added to subsections (e) and (f), Formula #1-Asset Value Risk, 1d, Common Stocks, to include the use of the minimum risk- based capital calculated in accordance with 28 TAC sec.7.401 and 28 TAC sec.7.410 for affiliated United States life and P/C insurers. Changes were made to subsections (e) and (f), Formula #3, Business Risk to include Option 1 and Option 2. Option 1 remains the same formula as proposed with an addition to Option 1 of 3a to incorporate Net A&H premiums written. Option 2 was added to incorporate risk-based capital and surplus formulas for net accident and health premiums earned as prescribed by the NAIC's risk-based capital and surplus formula. Section 7.401 requires a minimum level of capital and surplus appropriate to the underwriting, financial and investment risks of an insurer and provides the formulas which the agency will use in calculating the risk-based capital and surplus of an insurer. The section will permit the agency to perform calculations of the risk-based capital and surplus of insurers to allow more effective regulation. General- Commentors claim there is no rationale or justification for various factors used in the formulas and that the formulas appear arbitrary, questionable, excessive and unsubstantiated. Requests have been made that the rationale for the factors used in the formulas be disclosed. It is believed that the industry should have an opportunity to comment on the rationale for the factors used. The claim was made that there is no justification for excluding from the scope of the proposed section those companies that never insure a risk greater than $10,000. The agency responds that the justification and rationale for the formulas used is based on the risk-based formulas used by Moodys, Standard and Poor, and the NAIC. minimum risk-based capital- Commentors claim there is no explanation or distinction between the use of amounts calculated as risk-based capital and minimum risk-based capital. Concern was expressed over the use of the term minimum. It was explained that it is difficult to accept the calculations if one doesn't know how the calculations are to be used. The agency responds that the distinction between risk-based capital and surplus and the minimum risk-based capital and surplus is an insurer must maintain at least 75% of the calculated risk-based capital and surplus. NAIC-Commentors suggested that since the NAIC has been developing a risk-based capital formula that the proposed section should permit a Texas insurer to comply with the lesser of the Texas or the NAIC risk-based capital calculations. It was suggested that some alternative use of either the Texas rule or the NAIC rule should be developed. Commentors suggested that Texas adopt the NAIC risk-based capital and surplus model after it is adopted by the NAIC as a uniform standard or alternatively that Texas modify the proposed section in the areas of affiliates and health coverages to use the NAIC proposal as it currently exists. It was suggested that guidelines are more appropriate for Texas domiciled insurers rather than extraterritorial insurers licensed to do business in Texas and preference has been expressed that the NAIC guidelines be used as the standard for all states. Concern has been expressed over the difference between the Texas proposal and the NAIC's most current version. The contention has been made that if Texas has different requirements from the NAIC standards this will result in conflicting and overly burdensome regulation in the area of capital and surplus requirements for life insurers doing business in Texas and elsewhere. The suggested better course is to have nationally uniform risk-based capital requirements for life insurers. It has also been suggested that Texas adopt the risk-based capital and surplus requirements ultimately adopted by NAIC and refrain from implementing conflicting interim regulations. Waiting for the NAIC version would avoid the expense and confusion that would result in nonuniformity of requirements from state to state. The contention has been made that the NAIC will adopt the risk- based capital formula, specifications for regulatory actions for companies that do not meet the formula requirements, and legislative and regulatory language to implement the requirements at the December 1992 meeting. It was suggested that Texas should seek implementation of the NAIC standards in the 1993 Regular Legislative Session. It was felt that this approach would lend uniformity and greater certainty to the implementation of such an important solvency protection mechanism. A commentor recommended that Texas postpone action until the NAIC guidelines are fully exposed, discussed, and finalized and then consider the applicability of those guidelines. It was claimed that the proposed section was inappropriately developed and will created competitive disadvantage for companies licensed in Texas compared to other companies in the country. It was felt that the proposed NAIC guidelines are more adequate and appropriate and all states should adhere to a common standard. Some commentors were unclear as to why Texas is developing a different formula before the NAIC process is complete. The claim was made that a Texas company which competes in a state which adopts the NAIC guidelines and applies it to all licensed companies will have to meet the higher of the two standards. Commentors suggested that Texas policyholders will be better served and insurance company compliance facilitated if Texas continues to work with the NAIC on a formula to be uniformly applied. Another commentor believed that the NAIC formula is more sensitive to the measurement of risk than the Texas formula and the use of one formula approved by the NAIC is the best approach. Standardization of the risk-based capital formula was related by one commentor to the NAIC standardization of the Annual Statement for acceptability for all states. A commentor presented exhibits comparing results of calculations using the Texas and NAIC requirements. The agency responds that statutory authority is in place for adoption of risk-based capital and surplus requirements and the agency does not feel that it is necessary to wait for action by the NAIC. It is within the board's discretion to adopt the section. In addition, discussion and testing is still ongoing by the NAIC. In the event that a model act is adopted at the NAIC level, the Board may consider appropriate revisions to the section at that time. While this is implicit in the board's authority, language to that effect has been added to the section. The agency responds that changes were made based on comments received to incorporate the factors used by the NAIC where applicable. Additional options were incorporated into the formula for affiliated preferred and common stocks and accident and health business. These options resemble the NAIC formula. Competitive problem-Commentors claimed that the Texas proposal will place a company licensed in Texas at a clear disadvantage to a company not licensed in Texas for business in another state and that this would result in increased costs to the policyholders because of the higher standard required in the Texas proposal. The agency responds that the section will not put companies licensed in Texas at a competitive disadvantage to a company not licensed in Texas. The section will allow the public to distinguish between well capitalized companies and poorly capitalized companies. Factors and formula-Commentors felt that the Texas formula is a straight addition approach assuming total independence of risks and events whereas the NAIC formula takes more of a risk theory approach, making adjustments for volume and risks. It is believed that the actuarial theory and risk theory will prove the appropriateness and desirability of risk-based capital varying according to the volume of business involved. Also, it was felt that it was too liberal for term insurance and doesn't take into account the net amount of risk. It was suggested that the imposition of a 4% interest rate factor for group annuities is too conservative. A commentor felt that the interest rate risk is appropriate for highly interest sensitive liabilities such as GICs but not for stable liabilities such as those held for dividend accumulations and premium deposit funds. Commentors suggested that the factor for reserves is too simplistic and doesn't take into consideration mortality risk or varying methods of computing reserves. The agency responds that it has incorporated the NAIC formula for accident and health premiums earned. Factors for reserves were based upon factors derived from Moody's and Standard and Poor's risk-based capital and surplus calculations. Section 8.3(14) requires a life insurer to maintain capital and surplus equal to or in excess of 5.0% of reserves. The factors used in the risk-based capital and surplus rules are less than the factor for reserves used in the 28 TAC sec.8.3(14). Mortality risk for individual life policies, group life policies, and industrial life policies issued has been taken into account in the aggregate reserves as set forth in the Texas Insurance Code, Article 3.28, sec.3. Mortality risk for credit life policies issued has been taken into account in the aggregate reserves as set forth in the Texas Insurance Code, Article 3.28, sec.3. Section 7.401(a)(2), (4), and (7)-A commentor claimed that the section inappropriately delegates the board's rule making authority to the NAIC and the board's rule making authority can not be passed on by the board to the NAIC. It was suggested that the phrase "and as adopted from time to time by the State Board of Insurance under the Texas Administrative Code, Title 28, Chapter 7" be added to these paragraphs. The agency has added the suggested language. Subsection (d)(2)-A commentor suggested changing the word "enumeration" in this subparagraph to "product" as enumeration is an inappropriate word as used in this subparagraph. The agency concurs with the comment and has made the suggested change. Affiliated companies-(d)(2)(A)-Commentors believe an additional risk penalty is being imposed on companies for ownership of affiliate common stock. It is felt that if the formula is to have a stock risk factor then it should be a general common stock risk factor and applied the same for affiliate and all other common stocks because legislative standards in the Texas Insurance Code, Article 21.49- 1, already compensate for the risk element in affiliate common stock ownership. Commentors believe the increasing factors are unreasonable and the affiliate investments have been specifically approved by the Commissioner and the insurer's surplus has been determined to be adequate and reasonable under the Holding Company Act. It was suggested that the factor for affiliated common stocks should never exceed the factor for unaffiliated common stocks. Another commentor felt the formula is unrealistically severe and imposes requirements in excess of the NAIC and the Texas formula holds at risk 100% of the investment value of an affiliate. It is believed that the insurance subsidiary appropriate measure of risk is the risk-based capital of the subsidiary. Commentors claimed the proposed section's treatment of all affiliates the same is punitive and onerous. It was suggested that the NAIC proposal is a more appropriate measurement of risk associated with affiliated investments. It was claimed that the requirement creates a significant increase in risk-based capital even though the risk associated with the companies has not changed. Commentors suggested that consideration should be given to the nature of the affiliated organization. It was believed that the minimum risk-based capital and surplus for the parent should not be in excess of the risk-based capital and surplus required of a regulated affiliate. Commentors recommended that the factor for affiliated stocks is inappropriate. It should be the percentage of ownership interest multiplied by the affiliated insurer's required risk-based capital. The agency responds that it has incorporated the option to use the NAIC risk-based capital and surplus formula for affiliated preferred and common stocks. Subsection (e) Form RBC/LIFE Formula 1, life 1f-A commentor expressed concern that "Other Invested Assets" often include GNMA 'pass through' securities which are backed by the full faith and credit of the United States Government and have no risk in the same manner as United States government bonds. An explanation was requested for excluding the amount of the GNMA securities from Other Invested Assets. The agency responds that the NAIC Annual Statement Instructions are adopted from time to time by the State Board of Insurance under the Texas Administrative code, Title 28, Chapter 7. The NAIC Annual Statement Instructions include all other long-term investments in Schedule BA. Schedule BA would include United States government "pass throughs" since they are not reported in any other schedule. Subsection (e) FORM RBC/LIFE Formula 3, line 3a-Commentors objected to the use of a single entry for all types of accident and health premiums since there are many different types of health insurance policies, coverages and risks and these differences should be recognized. The insurance risk factor of 25% of premiums fails to grade the important risk differences between group and individual health insurance and between high and low volume insurers. It was suggested that the Texas health insurers who write business nationwide will be penalized compared to insurers domiciled in other states. Commentors claimed the 25% factor is too high, unreasonable and punitive. Commentors claim that the Texas proposal would put companies at a significant competitive disadvantage since less capital is required in relation to investment risk and more in relation to insurance risk. There is a problem with the same requirement being placed on all lines of A&H coverage regardless of the risks inherent in the business. It is appropriate to recognize the difference in risk rather than assume all A&H business has the same risk. It was suggested that the percentage of premium vary with the risk associated with the various categories of A&H business. A commentor suggested that proper recognition of A&H reserve adequacy in the RBC formula is imperative. The agency responds that it has incorporated the option to use the NAIC risk-based capital and surplus formula for accident and health premiums earned. Additional reserves, avr, and imr - A commentor was concerned that the proposed section requires the computation of additional reserves, asset valuation reserve and interest maintenance reserve. It was claimed that Texas has no authority to require additional reserves such as AVR or IMR. The commentor has no problem with those companies doing business in other states which required the maintenance of AVR and IMR to receive credit for these reserves in the risk- based capital and surplus formula. The agency has made changes to the section based on the comments by including the phrase "in determining the adequacy of an insurer's capital and surplus, an insurer that establishes AVR and IMR, as defined in this section, will be allowed credit for these reserves". Formula 1, 1a, Bonds -A commentor suggested that the proposed section is not a very sophisticated or accurate predictor of asset risk. The factors for Class 1- 4 bonds should be the same as the NAIC which makes more appropriate adjustments for investment grade bonds and for the default risk associated with Class 3 and 4 bonds. A commentor expressed concern that there are some risks present in Class 1 and 2 bonds, yet a risk component is not allocated. The agency responds that it has incorporated the NAIC factors for class 3, 4, and 5 bonds. The risk factors associated with Class 1 and 2 bonds are not material to the overall risk-based capital and surplus formula. Formula 6(b)-Commentors contend that the formula is too simplistic, should exclude separate account assets and liabilities and the AVR. IMR is a legitimate reserve but should not be included in adjusted surplus in this formula. The suggestion was made to delete this limitation as it will serve to allow companies with greater risks to maintain less than adequate capital and surplus requirements. The agency responds that AVR is established to protect an insurer's assets from declining values. IMR is established to protect interest rate fluctuations on assets sold before their maturity date. The IMR reserve is established at one hundred percent of net capital gains to be amortized over the remaining life of the assets sold. The IMR reserve is for the benefit of the policyholders to offset future investment income shortfalls. A commentor contends that the proposed section weights mortgage loans more heavily than the NAIC version, thus there is a disadvantage to have mortgage loans in a portfolio. It was expressed that careful management and selection of mortgage loans can produce beneficial results to policyholders. The agency responds that it changed Formula #1, line 1c, to resemble the NAIC risk-based capital and surplus formula for residential, farm, commercial loans in good standing, 90 days past due, and insured and guaranteed mortgage loans. A commentor disagrees that the proposed formula doesn't allow addition of any of next year's provision for dividends payable to policyholders. The agency responds that this amount is not material to the overall concept of risk-based capital and surplus. Subsection (i)-Commentors suggested that the current capital and surplus requirements be replaced with the risk-based capital and surplus requirements which would be tailored to the needs of each individual life insurance company. The agency disagrees with the comment and believes that the use of the NAIC formulas and the formulas developed by the department will present the best information for the agency. A commentor recommended elimination of some reporting requirements for companies that maintain a specified percentage in excess of its risk-based capital and surplus requirements. The agency does not believe that it is feasible at this early date to eliminate other reporting requirements until it is shown that the other reporting requirements are not necessary for use by the agency. Extraterritorial-A commentor claimed that the Texas proposed application to all companies licensed to do business in the state is an extraterritorial application of the proposed section and inappropriate. The opinion was expressed that the state of domicile of a company should establish the risk-based capital requirement for its companies. The agency responds that the statute provides the agency the authority to apply risk-based capital and surplus requirements to all companies licensed in Texas and the use of the NAIC formulas developed to date lend uniformity to the requirements. The agency believes that the section should be applied equally to domestic and foreign insurers licensed in Texas and does not believe adoption of the section at this time will be disruptive to the market because very few active companies are affected in the first year. Texas Legal Reserve Officials Association, Anthem Life Insurance Company of Texas, Primerica Life Insurance Company, Texas Farmers Companies, American General Corporation, American Council of Life Insurance, Primerica Insurance Company, Blue Cross and Blue Shield of Texas, Inc., Government Personnel Mutual Life Insurance Company, Life of America, and Provident American Insurance Company-against. National Farm Life Insurance Company-for. The new section is adopted under the Insurance Code, Articles 3.02, 22.13, and 1.04 and Texas Civil Statutes, Article 6252-13a, sec.4 and sec.5. The Insurance Code, Articles 3.02 and 22.13 provide that the Texas Department of Insurance may adopt rules to require an insurer to maintain capital and surplus levels in excess of the statutory minimum. Article 1.04(b) authorizes the State Board of Insurance to determine rules in accordance with the laws of this state for uniform application. Texas Civil Statutes, Article 6252-13a, sec.4 and sec.5 authorize and require each state agency to adopt rules of practice setting forth the nature and requirement of available procedures, and prescribe the procedures for adoption of rules by a state administrative agency. The new section affects the regulation of the capital and surplus requirement of life, accident, and health insurers under the Insurance Code, Articles 3.02 and 22.13. sec.7.401. Minimum Risk-Based Capital and Surplus Requirements for Life, Accident and Health Insurers. (a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise. (1) Accidental death and dismemberment (AD&D)-Policies that are issued for the purpose of providing an insured coverage in the event of accidental death or dismemberment as set forth in the policy. (2) Affiliated-Investments in parent, subsidiaries, and affiliated entities. as described in the NAIC annual statement under the category of parent, subsidiary, and affiliates in Schedule D, Part 2, sec.1 and sec.2, (3) Annual statement-The annual statement (association edition) to be used by life insurance companies, as promulgated by the National Association of Insurance Commissioners (NAIC) and as adopted by the State Board of Insurance under the Texas Administrative Code, Title 28, Chapter 7 or any other annual statement blank adopted by the State Board of Insurance or requested to be filed by the Texas Department of Insurance. (4) Asset valuation reserve (AVR)-A reserve applied to the specific risk characteristics of all the invested asset categories except cash, policy loans, premium notes, collateral loans, and income receivables. Asset valuation reserves shall be calculated as prescribed by the NAIC and adopted from time to time by the State Board of Insurance under the Texas Administrative Code, Title 28, Chapter 7. (5) Asset value risk-The amount of risk based on the quality and liquidity of the investment portfolio for an insurance company. (6) Asset class-The classification for investment grade or non-investment grade preferred stocks and bonds as defined by the NAIC's Securities Valuation Office (SVO) and adopted from time to time by the State Board of Insurance under the Texas Administrative Code, Title 28, Chapter 7. (7) Board-The State Board of Insurance of the State of Texas. (8) Commissioner-The commissioner of insurance of the Texas Department of Insurance, appointed under the Insurance Code, Article 1.09. (9) Dental-Policies that provide supplemental coverage for dental expenses and are issued only to the in force policies on an individual or group basis through a dental service organization subscriber contract. (10) Disability Income-A policy which provides for periodic payments, weekly or monthly, for a specified period during the continuance of disability resulting from either sickness or accident or a combination thereof and set forth in 28 TAC sec.3. 3075, pertaining to minimum standards for disability income protection. (11) Hospital indemnity-Policies of accident and sickness insurance providing the types of coverage set forth in 28 TAC sec.3. 3073, pertaining to minimum standards for hospital confinement indemnity coverage. (12) Interest maintenance reserve (IMR)-A reserve applied to realized capital gains and losses on short-term and long-term fixed investments. These gains and losses are from the disposal of investments as reported in Schedule D, part 1 - Bonds, or Schedule B-Mortgage Loans of the current annual statement. The reserve captures the realized capital gains and losses resulting from changes in the general level of interest rates as prescribed by the NAIC and adopted from time to time by the State Board of Insurance under the Texas Administrative Code, Title 28, Chapter 7. (13) Limited benefits (limited ben) -Policies of accident and sickness insurance providing the types of coverage set forth in 28 TAC sec.3.3079, pertaining to minimum standards for limited benefit coverage. (14) Medicare Supplement (medicare Supp)-Policies that provide benefits on an expense incurred basis and are issued to a person eligible for such benefits under Medicare and provide the types of coverage set forth in 28 TAC sec.3.3078, pertaining to minimum standards for medicare supplement expense coverage. (15) Noncancellable-Policies under which the insured has the right to continue coverage by the timely payment of premiums and the insurer may not unilaterally make any changes in any provision while the policy is in force. (16) Usual and customary major medical and hospitalization (Usual and Cust Maj Med & Hosp)-Policies of accident and sickness insurance that provide hospital, medical, and surgical expense coverage set forth in 28 TAC sec.3.3074, pertaining to minimum standards for major medical expense coverage. (b) Scope. This section applies to any insurer authorized to do business in Texas as an insurance company that writes or assumes life insurance, annuity contracts or liability on, or indemnifies any one person for, any risk under a health, accident, sickness, or hospitalization policy, or any combination of those policies, in an amount in excess of $10,000 including: capital stock companies, mutual life companies, fraternal benefit societies, and stipulated premium companies. (c) Purpose. The purpose of implementing a risk-based capital and surplus provision is to require a minimum level of capital and surplus to absorb the financial, underwriting, and investment risks assumed by an insurer. In determining the adequacy of its capital and surplus, an insurer that establishes AVR and IMR, as defined in this section, will be allowed credit for these reserves. (d) Application of Form RBC/LIFE or Form RBC/FRAT. In determining the minimum risk-based capital and surplus, the department will utilize the form entitled Minimum Risk-Based Capital and Surplus Requirements for Life Insurance Companies and Stipulated Premium Companies Licensed in Texas, hereinafter referred to as Form RBC/LIFE, and the form entitled Minimum Risk-Based Capital and Surplus Requirements for Fraternal Benefit Societies Licensed in Texas, hereinafter referred to as Form RBC/FRAT. Each insurer may use such form as appropriate to its operation, but no insurer is required to file a completed form with the department, unless specifically requested to do so by the department. (1) Insurers will be evaluated in accordance with the formulas in Form RBC/LIFE or Form RBC/FRAT to determine the adequacy of capital and surplus. (2) Form RBC/LIFE and Form RBC/FRAT provide for the calculation of six formulas. For formulas 1, 2, 3, 4, and 6a, each described line item is multiplied by the indicated factor to derive a product. The products are then summed to obtain the total for each formula. (A) Formula 1 determines the asset value risk of invested assets based on the total quality of bonds, stocks, mortgage loans, real estate, collateral loans, certificate loans or liens, other invested assets, and separate accounts. (B) Formulas 1b and 1d determine the value risk of preferred stocks and common stocks. The value of preferred stocks and common stocks shall be determined by one of the following two methods at the option of the insurer. (i) Option 1 distinguishes between investments in affiliated preferred and common stocks and investments in unaffiliated preferred and common stocks and applies factors to each. For affiliated preferred and common stocks, the factor shall be 0.20 for 1992, 0.40 for 1993, 0.60 for 1994, 0.80 1995, and 1.00 for 1996 and subsequent years, applied to the total amount (or statement value) of such investments. For unaffiliated preferred stocks, the factor shall be based on the designated NAIC asset class, applied to the statement value of the preferred stocks owned. For unaffiliated common stock, the factor of 0.25 shall be applied to the book value of common stocks owned. (ii) Option 2 distinguishes between investments in affiliated United States insurers, investments in affiliated Canadian and alien insurers, investments in other affiliates, and investments in unaffiliated common and preferred stocks and applies factors to each of these types of investments. For investments in affiliated United States life insurers, a factor of one shall be applied to the minimum risk-based capital and surplus of those affiliated life insurers, calculated in accordance with this section, multiplied by the percentage of ownership. For affiliated United States stock property/casualty insurers, a factor of one shall be applied to the minimum risk-based capital and surplus of those affiliated stock property/casualty insurers, calculated in accordance with sec.7.410 of this title (relating to minimum risk-based capital and surplus for stock property/casualty insurers), multiplied by the percentage of ownership. For affiliated Canadian and alien insurers, a factor of one shall be applied to the statement value of preferred stocks and to the book value of common stocks. For unaffiliated preferred stock the factors shall be based on the designated NAIC asset class as defined in this section applied to the statement value. For unaffiliated common stocks a factor of 0. 25 shall be applied to the book value. (C) Formula 2 determines the insurance interest rate risks associated with individual annuity products, group annuity products, and guaranteed investment contracts. (D) Formula 3 of the Form RBC/LIFE determines the business risk calculated by one of the following two methods at the option of the insurer: (i) Option 1 distinguishes between the business risk for net accident and health premiums written, limited to a minimum of zero; individual life reserves; group life reserves; and credit life reserves by using the factors referenced in Form RBC/LIFE. (ii) Option 2 distinguishes between the business risk for net accident and health premiums written, limited to a minimum of zero; individual life reserves; group life reserves; and credit life reserves by using the factors referenced in Form RBC/LIFE. Net accident and health premiums earned are categorized by medical care and disability income, which are further categorized by individual morbidity and group and credit morbidity. Factors shall be applied to the earned premiums as referenced in Form RBC/LIFE. (E) Formula 3 of the Form RBC/FRAT determines the business risk calculated by one of the following two methods at the option of the insurer: (i) Option 1 distinguishes between the risk for net accident and health premiums written, limited to a minimum of zero, and life reserves by using the factors referenced in Form RBC/FRAT. (ii) Option 2 distinguishes between the business risk for net accident and health premiums earned, limited to a minimum of zero, and life reserves by using the factors referenced in Form RBC/FRAT. Net accident and health premiums earned are categorized by medical care and disability income, which are further categorized by individual morbidity and group and credit morbidity. Factors shall be applied to the earned premiums as referenced in Form RBC/FRAT. (F) Formula 4 determines the risk associated with reinsurance including paid and unpaid losses recoverable; life, accident and health reserve credits ceded; unauthorized reinsurance funds withheld; and unauthorized reinsurance letters of credit associated with reinsurance with affiliated and unaffiliated reinsurers. (G) Formula 5 determines the total risk-based capital and surplus by the summation of formulas 1, 2, 3, and 4. (H) Formula 6a determines the minimum risk-based capital and surplus requirements for an insurer based on 75% of the total risk-based capital and surplus calculated in accordance with Formula 5. (I) Formula 6b determines the statutory limitations for required increases in capital and surplus. The minimum risk-based capital and surplus requirements shall be for the protection of policyholders, but may not, according to the dates specified below, require that the total admitted assets of a company exceed the following percentages of its total liabilities: (i) as of December 31, 1992, 103%; (ii) as of December 31, 1993, 103%; (iii) as of December 31, 1994, 103%; (iv) as of December 31, 1995, 104%; (v) as of December 31, 1996, 105%; and (vi) as of December 31, 1997, 106%; (J) In the event that a risk-based capital and surplus model act for life, health and accident insurers is promulgated by the NAIC subsequent to adoption of this section, nothing in this section shall preclude the Board from considering any formula(s) to replace formula(s) contained in Form RBC/Life or Form RBC/Frat. (e) Form RBC/LIFE, to be utilized by the department in calculating risk-based capital and surplus requirements and described in subsection (d) of this section, contains the provisions set forth as follows: [graphic] (f) Form RBC/FRAT, to be utilized by the department in calculating risk-based capital and surplus requirements and described in subsection (d) of this section, contains the provisions set forth as follows: [graphic] (g) Calculation using forms. After the end of each calendar year, or more frequently if the commissioner deems it necessary, the formulas contained in Form RBC/LIFE or RBC/FRAT shall be used to calculate the minimum risk-based capital and surplus requirements based on specified financial information as filed with the NAIC or as available through the examination or financial analysis process. Financial information required to complete calculations in Form RBC/LIFE and RBC/FRAT shall include the same information for 1992 and subsequent years, regardless of changes in page, line, or column number of the association statement blanks adopted by the board or otherwise requested by the department. (h) Actions of commissioner. The commissioner of insurance may take the following actions against an insurer who fails to maintain, at a minimum, capital and surplus equivalent to the amount calculated in accordance with Form RBC/LIFE or Form RBC/FRAT: (1) place the insurer in supervision or conservation; (2) determine the insurer to be in hazardous financial condition as provided by the Insurance Code, Article 1.32 and 28 TAC sec.8.3 (relating to Hazardous Conditions) regardless of percentage of assets in excess of liabilities; (3) determine the insurer to be impaired as provided by the Insurance Code, Article 3.60; or (4) subject the insurer to any other applicable sanctions provided by the Insurance Code or Texas Administrative Code, Title 28. (i) Limitations. In no event shall the requirements of this section reduce the amount of capital and surplus otherwise required by provisions of the Insurance Code or the Texas Administrative Code, or by authority of the commissioner of insurance. 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 December 1, 1992. TRD-9216017 Linda K. von Quintus-Dorn Chief Clerk Texas Department of Insurance Effective date: December 31, 1992 Proposal publication date: July 28, 1992 For further information, please call: (512) 463-6327 28 TAC sec.7.410 The State Board of Insurance of the Texas Department of Insurance adopts new sec.7.410, concerning the regulation of risk-based capital and surplus requirements for certain capital stock property and casualty insurers subject to the provisions of the Texas Insurance Code, Articles 2.02, 2.20, and 21.44, with changes to the proposed text as published in the July 28, 1992, issue of the Texas Register (17 TexReg 5271). Section 7.410 concerns the minimum risk-based capital and surplus requirements for all stock property and casualty insurers except those authorized to write mortgage guaranty insurance only. The new section requires a minimum level of policyholders' surplus appropriate to the underwriting, financial, and investment risks of a capital stock property/casualty insurer. It also sets forth the formulas which the agency will use in calculating the risk-based capital and surplus of an insurer. The adoption includes several changes to the proposed text for the reasons stated in this paragraph. This adoption includes a change to sec.7.410(a)(2) to distinguish between industry average and individual insurers and, by adding subparagraphs (A) and (B), to provide two options when an insurer has investments in affiliates. A change was made to paragraph (a)(7) to allow for adjustments in the calculation. A change was made to paragraph (a)(8) to delete the reference to the Securities Valuation Office of the National Association of Insurance Commissioners (NAIC). Changes were made to paragraphs (a)(9) and (a)(10), and subsection (b) to delete references to non- stock companies and clarify that the section applies only to certain capital stock property and casualty insurers. References to Form RBC/PC(S) were changed throughout the section to refer to Form RBC/PC since there will not be a Form RBC/PC(NS). A change was made to paragraph (d) (1) for clarification. Changes were made to subparagraphs (d)(2)(A) and (d)(2) (C) to clarify how a company's liabilities and policyholders' surplus will be adjusted. Changes were made to clause (d)(4)(A)(i) to clarify the use of certain discounts carried forward and to limit certain discounts to those used prior to January 1, 1992. Changes were made to clauses (d)(4)(B)(i) and (d)(4) (B)(ii) to clarify adjustments made. A change was made to clause (d)(4)(B)(iv) to clarify the use of reinsurance by state pools. Paragraph (d)(5) was added to acknowledge the Board's ability to adopt the NAIC model act to replace portions of the adopted section. Changes were made to subsection (e), FORM RBC/PC(S). The title of the form was changed from FORM RBC/PC(S) to FORM RBC/PC since the application of the section to non- stock companies has been deleted and only one form is now included. Lines were added to FORM RBC/PC to provide company name, NAIC number, and the period-ending date. Footnotes were added to Ratios 1 and 3 to include adjustments provided in clause (d)(4)(A)(i). Ratio 1 was changed to provide companies a choice of two options to calculate affiliated investments and to clarify the calculation of the industry average. The applicable percentage of affiliated stock investments was changed in the new option 1 of Ratio 1 to delete the reference to 20% for 1992 and to add the reference to subparagraph (a)(2)(A). A change was made to Calculations 4b and 4c of the form to correct the title of the ratio to "Adjusted Actual Risk-Based Capital and Surplus to Adjusted Minimum Risk-Based Capital and Surplus." Changes were also made to Calculation 4 to include the options provided in Ratio 1. Subsections (f) and (g) were deleted from the section since the section will apply to capital stock companies and not to non- stock companies and the following subsections were renumbered appropriately. Changes were made to now subsection (f), formerly (h), to delete references to the non-stock company form. Changes were made to subsection (g), formerly (i), to provide a timeframe by which companies will be expected to have demonstrated compliance with the risk-based capital and surplus requirements. Section 7.410 requires a minimum level of policyholders' surplus appropriate to the underwriting, financial, and investment risks of a stock property/casualty insurer and provides the formulas which the agency will use in calculating the risk-based capital and surplus of an insurer. The section will permit the agency to perform calculations of the risk-based capital and surplus of insurers to allow more effective regulation to assure the financial solvency of insurers for the protection of policyholders. NAIC-Commentors suggested that adoption of the proposed section be deferred until the NAIC has adopted a uniform country-wide standard. Commentors contend that Texas is under no compulsion to adopt rules but should take a more cautious approach. Other states with risk-based capital statutes are awaiting the NAIC's completion of a uniform standard, and Texas should follow suit. Commentors claim that adoption could adversely impact Texas receiving certification under the NAIC solvency program. Concern was expressed that there would be duplicative effort on the part of the Texas Department of Insurance and the NAIC and the probability of a non-uniform approach occurring with Texas having a rule different from the NAIC. It was suggested that if Texas adopts the proposed section that at least a sunset clause be included to coincide with implementation of the NAIC risk-based capital requirements. If the Board adopts the proposal, it is recommended that the section be done away with and the NAIC standard adopted as soon as it becomes available. It was recommended that if the Board adopts the section at this time that it should apply only to Texas domestic insurers to lessen any market disruption which might occur. Commentors believe that the implementation of the proposed section at this time would create confusion and redundancy and lessen competition in Texas. Commentors feel the proposed section needs input from industry to be reasonable from a compliance standpoint and still attain the desired goals. It was recommended that a date certain be stated in the section for application of the section rather than applying the section to the annual statement for the year ending December 31, 1992. Commentors believe the requirement of compliance by 1992 is unreasonable since it doesn't provide sufficient time for an insurer to perform the necessary scrutiny of its investments and other financial components to prevent unnecessary hardship. Commentors also said that the NAIC was in the testing phase, that they were not aware of any testing Texas had done, and that the proposed section did not address adequacy of reserves. The agency responds that statutory authority is in place for adoption of risk-based capital and surplus requirements and the agency does not feel that it is necessary to wait for action by the NAIC. It is within the Board's discretion to adopt the section. In addition, discussion and testing is still ongoing by the NAIC, and there is no definite date at which a model act will be adopted by the NAIC. In the event that a model act is adopted at the NAIC level, the Board may consider appropriate revisions to the section at that time. While this is implicit in the Board's authority, language to that effect has been added to the section. The agency believes that the section should be applied equally to domestic and foreign insurers licensed in Texas and does not believe adoption of the section at this time will be disruptive to the market because a relatively small number of active companies are affected in the first year. Because of the length of time since publication of the proposed section, the relatively few companies adversely affected by the section in the first year, and, based on industry comments, the addition of options for affiliated investments, the agency feels that the effective date of December 31, 1992 is appropriate. However, language has been added to the section to provide additional time after December 31 for companies to correct deficiencies before formal action is pursued by the agency. The department has performed testing of the proposed formulas. Adequacy of reserves was one of several factors that statute provided the Board could, but was not required to, consider in developing risk-based capital and surplus requirements. MORTGAGE GUARANTY INSURERS-Requests were made that mortgage guaranty insurers be exempt from application of the proposed section. Mortgage guaranty insurers are already subject to statutory liability limitations in the Insurance Code, Article 21.50, sec.6. Mortgage guaranty insurers can only write new business when the risk-to-capital/surplus/contingency reserve ratio declines below 25/1. The capital and surplus requirements for mortgage guaranty insurers are tied to the risk outstanding rather than to levels of premium written. Commentors contend the analysis in the proposed section, Form RBC/PC(S) and Form RBC/PC(NS), distorts the true risk outstanding for mortgage insurers and thus distorts the capital and surplus requirements. Claims were made that A. M. Best recognizes that its property/casualty rating procedures are inappropriate for mortgage guaranty insurers. The rating agencies have developed special stress tests that recognize the different nature of the risk and the unique reserve and financial structure of these types of companies. It is believed that the proposed section does not measure the relative potential for loss on a risk and thus cannot correctly or adequately measure the risk of a mortgage guaranty insurer. Mortgage guaranty insurers are required to establish a contingency reserve equal to 50% of earned premiums each year and hold the funds for 10 years. The contention was made that the risk-based capital and surplus requirements do not take contingency reserves into the calculations so there will be an enormous distortion as relates to mortgage guaranty insurers. Mortgage guaranty insurance has a volatile nature, is exempt from the property/casualty guaranty funds, and limited to that line of insurance (monoline). The NAIC Property/Casualty Risk-Based Capital Working Group of the Examination Oversight (EX4) Task Force has tentatively decided to exempt mortgage guaranty, financial guaranty, and a few other areas from the NAIC risk- based capital rules. The commentor also claimed that the existing liability to capital/surplus/contingency reserve requirements to mortgage guaranty insurers in Article 21.50 limits the risk and achieves the solvency protection for mortgage guaranty insurers and their policyholders that the proposed risk-based capital requirements do for property/casualty insurers. It was suggested that different standards to calculate capital and surplus requirements for mortgage guaranty insurers be consistent with the capital/risk ratio currently used by the industry. A commentor felt that the formula fails to take into account some significant areas of risk. The nature and type of the risks insured and the adequacy of company's reserves are not taken into account. Concern was expressed that the formula may encourage inadequate rates and reserves since it may lower the needed amount of surplus. The agency responds that, based on comments received, mortgage guarantee insurers have been excluded from the risk-based capital and surplus requirements of the section. STOCK verses NON-STOCK- Commentors expressed concern that the risk-based surplus requirements were not similarly applied to stock and non-stock companies and that the legal organization of companies should not be determinate of its risk-based capital and surplus requirements. Commentors suggested that the department wait and rely on the NAIC model act rather than adopt a Texas rule on risk-based capital and surplus. It was suggested that the better way to enhance solvency is to support a mechanism that provides assurance that companies will have the assets necessary to pay claims by requiring each insurer to establish a custodial account in the amount of reserves for losses and loss adjustment expenses, or in the amount of discounted reserves. This account would remain the insurer's property and could not be drawn down without regulatory approval. A suggestion was made that if the Board decides to go forward with the proposed section now that it adopt the statutory requirement for non-stock companies for all companies. Commentors believe that a completely objective methodology is inappropriate and that an objective criteria should only be an element of an overall determination that includes an evaluation of all facts and circumstances applicable to a particular insurer. The claim was made that the formulas are arbitrarily applied to stock or non-stock companies. Commentors see no rationale for different formulas based on the ownership structure and believe the section will require less surplus of stock companies than non-stock companies, thus requiring mutual and reciprocal insurers to maintain higher levels of surplus than stock company counterparts. It is claimed that this would create a competitive disadvantage for mutual and reciprocal insurers in Texas resulting in an increase in insurance costs. The claim was also made that the proposed section would encourage manipulation of financial data. Confusion was expressed as to whether the Insurance Code, Article 2.20(f), still applies to non-stock companies or whether this section take priority. It was suggested that county mutuals, lloyds, and reciprocals should be exempt from the proposed section as the section conflicts with Article 2.20(f). The agency responds that statute distinguishes between stock and non-stock companies and precludes the application of similar risk-based capital and surplus requirements to both types of companies, unless those requirements are the statutory requirements for non- stock companies. The agency responds that the risk-based capital and surplus requirements of this section provide more reasonable measures of a company's underwriting, financial, and investment risks than a premium to surplus ratio or the establishment of a custodial account for reserves. Statute contemplates disparate treatment of stock and non-stock insurers. Since the requirements for non-stock companies is already set by statute and inclusion of those requirements in the section have caused confusion, application of the section to non-stock companies has been deleted. The agency further responds that objective methodology has been tested and gives reasonable consideration to each insurer's underwriting, financial, and investment conditions, and each insurer has been given the opportunity to apply its own criteria to Ratio 1 by the addition of options for calculating affiliated investments. Section 7.410 is not intended to be an all-inclusive determination of solvency, and the agency will continue to apply other statutes and rules to preclude inappropriate manipulation of financial data. AFFILIATES-Commentors claimed the formula penalizes insurers for reinsurance ceded to other than affiliates 100% of the amount above the industry average and will cause an understatement of loss reserves since the formula measures premiums, plus liabilities, divided by surplus and understating reserves reduces total liabilities and increases surplus simultaneously. It was suggested that one could execute a loss portfolio transfer reinsurance to manipulate the calculations of risk-based capital and surplus. Commentors felt that the minimum risk-based capital and surplus requirements are more appropriately developed on a national basis than a state-by-state basis. Commentors opposed the manner in which affiliated stock investments are to be discounted. The claim was made that no consideration has been given to the real value of a subsidiary's assets and thus companies that hold stock in successful subsidiaries are penalized for the success of that subsidiary under the proposed formula. Concern was expressed that this treatment will cause market disruptions in Texas. Subsection (a)(2)-Adjusted policyholders' surplus-Commentors believe the definition could lead companies to different ownership structures to avoid the "investment in affiliate" charge. One commentor felt that the deduction of affiliated stock investments from policyholders' surplus is punitive. It is believed that this position presumes investments are worthless. The position was taken that the relative strength of the affiliate should be taken into account. Subsection (d)(2)-Commentors believe consideration should be given to the different lines of business since different lines of business require different amounts of loss reserves with different durations. The suggestion was made that an evaluation of the types of liabilities in relation to policyholder surplus as well as the relative size of the company should occur and consideration should be given to different asset qualities as well as weighing all investments, including government/state obligations, and grouping of real estate with common stocks does not give appropriate recognition to the potential risks present in each investment. It was suggested that the final NAIC model could serve as a model for the states to adopt, including Texas. Concern was expressed that the proposed formulas will only serve as a rough measure and only target the most egregious companies. It was felt that ratio 3 presumes all investments other than class 1 and 2 bonds are risky and not desirable and would unduly penalize some companies with very strong investment portfolios. Concern was expressed that too little benefit will be achieved for the cost of the proposed section and it was suggested that reliance on other more effective solvency regulation tools be used. Concern was expressed that companies with inadequate reserves would do better than well-reserved companies in Ratio 1, that Ratio 2 did not consider business ceded to pools as risk-free, that the section was not clear on substitutions provided in Ratio 2, and that Ratio 3 bonds that had not been valued by the NAIC were classified as "medium or high risk." Further, commentors stated that there was no rationale for using industry averages in determining the level of capital and surplus, that the section was too simplistic, and that components of the model were not on the same basis. The agency responds that insurers have the opportunity to offset any penalty for ceded reinsurance with lower than industry average risks in Ratios 1 and 3. The reduction to policyholders' surplus for affiliated investments eliminates double-counting of surplus to support underwriting risks. Changes were made based on industry comments to allow companies the choice of two options to calculate affiliate investments. In some cases, it may be appropriate for groups of companies to redistribute capital and surplus, but the number of companies affected will not cause significant market disruptions. Consideration is given to different types of liabilities in Ratio 1 and to different types of investments in Ratio 3. Ratio 3 does not penalize investments in other than class 1 and 2 bonds to the extent that such investments of an insurer, in combination with other risks, do not exceed industry averages. The section is not intended to be an all-inclusive determination of solvency, and the agency will continue to apply other statutes and rules to preclude inappropriate manipulation of financial data. It is noted that the section does make provision for business reinsured by certain pools and that clarification has been made to the section for investments that have not been valued by the NAIC. Substitutions for calculating company ratios do not affect the calculation of industry averages which will continue to be calculated without substitution. In developing the formulas in the section, the agency attempted to create a simple, yet reasonable measure of insurers' risks, recognized that components had different bases, and felt that industry averages were appropriate measures by which to compare insurers. DISCOUNTING-Concern was expressed that the formulas require adjustments for non-tabular reserve discount which is inconsistent with industry averages. Comments were made that since some companies have historically discounted reserves, it was unreasonable to disallow the discounting so abruptly, and it was suggested that the adjustment to policyholders' surplus for discounting be phased in. Another comment or stated that liabilities should be discounted, and surplus increased for discounting, to provide for companies writing long-tail lines of business. The agency responds that, while discounting may be material to an individual insurer, it is very immaterial to the calculation of industry averages. Based on industry comments, the section has been changed to provide a five-year phase-out of certain loss reserve discounts. Nothing in the comments supports the contention that premiums plus discounted liabilities to surplus is a better measure of risk than the premium plus liabilities to surplus contained in Ratio 1. National Association of Independent Insurers, Reinsurance Association of America, Verex Assurance, Inc., State Farm Insurance Companies, Texas Farmers Companies, Hanover Insurance, CNA Insurance Companies, American Insurance Association, Alliance of American Insurers, Voyager Insurance Group, and Association of Fire & Casualty Companies in Texas-against. Texas County Mutual Association, Texas Association of Independent Lloyds, the Texas Citrus & Vegetable Insurance Exchange, and MGIC Investment Corporation-request exemption from the proposed section. Columbia Lloyds Insurance Company, Gulf Insurance Group, and National Association of Mutual Insurance Companies-expressed no position either for or against the proposed section. The new section is adopted under the Insurance Code, Articles 2.01, 2.02, 2. 20, 1.10, and 1.04 and Texas Civil Statutes, Article 6252-13a, sec.4 and sec.5. The Insurance Code, Articles 2.01, 2.02, and 2.20, provides that the Texas Department of Insurance may adopt rules to require an insurer to maintain capital and surplus levels in excess of statutory levels to assure the financial solvency of insurers for the protection of policyholders. Article 1. 10, sec.5, addresses the duties of the board when a company's surplus is impaired. Article 1.04(b) authorizes the State Board of Insurance to determine rules in accordance with the laws of this state for uniform application. Texas Civil Statutes, Article 6252-13a, sec.4 and sec.5 authorize and require each state agency to adopt rules of practice setting forth the nature and requirement of available procedures and prescribe the procedures for adoption of rules by a state administrative agency. The new section affects the regulation of the capital and surplus requirements of stock property and casualty insurers under the Insurance Code, Article 2.20. sec.7.410. Minimum Risk-Based Capital and Surplus Requirements for Stock Property/Casualty Insurers. (a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise. (1) Adjusted gross written premium-The total direct and assumed written premiums of any insurer: (A) after adjustment for additional or return premiums; and (B) after deduction of those premiums ceded to affiliates of the insurer. No deduction shall be made for premiums ceded to non-affiliates except as provided in subsection (d)(4)(B)(iv) of this section. (2) Adjusted policyholders' surplus-For industry average purposes, the consolidated industry total capital and surplus, reduced by 100% of the consolidated industry total of all affiliated common and preferred stock investments. For individual insurers, the total capital and surplus of the insurer, reduced by investments in affiliate common and preferred stocks determined by one of the following two methods at the option of the insurer. (A) Option 1 may be used to calculate investments in affiliate common and preferred stocks by applying the applicable percentage to the total amount of such investments. The applicable percentage shall be 20% for 1992, 40% for 1993, 60% for 1994, 80% for 1995, and 100% for 1996 and subsequent years. (B) Option 2 may be used to calculate investments in affiliate common and preferred stocks as the total of risk-based capital and surplus of U.S. insurance company affiliates, calculated in accordance with this section for property/casualty insurance company affiliates and in accordance with sec.7.401 of this title (relating to Minimum Risk-Based Capital and Surplus for Life Insurers) for life insurance company affiliates, multiplied by the percentage of ownership in each affiliate. The calculation using this option shall include U.S. non-insurance affiliates at the lesser of 100% of admitted statement value or 30% of the total of the affiliates' stocks, mortgage loans, real estate, bonds equivalent to mid/low investment quality bonds as defined in this section, and collateral loans. The calculation using this option shall include non-U.S. affiliates at 100% of the admitted statement value. (3) Annual statement-The annual statement (association edition) to be used by fire and casualty (property/casualty) insurance companies, as promulgated by the National Association of Insurance Commissioners (NAIC) and as adopted by the State Board of Insurance under 28 Texas Administrative Code, Chapter 7 any other annual statement blank adopted by the State Board of Insurance or requested to be filed by the Texas Department of Insurance. (4) Best's Aggregates & Averages-The most recent edition by A.M. Best Company of the publication entitled Best's Aggregates & Averages Property-Casualty. (5) Board-The State Board of Insurance of the State of Texas. (6) Commissioner-The commissioner of insurance of the Texas Department of Insurance, appointed under the Insurance Code, Article 1.09. (7) Industry average-The number calculated using consolidated industry totals for each annual statement amount referenced in Form RBC/PC of this section, excluding adjustments provided in subsection (d)(4)(A)(i) of this subsection and, for Ratio 1, using adjusted policyholders' surplus as defined in paragraph (a)(2) of this section. The consolidated industry totals shall be obtained from Best's Aggregates & Averages for all property-casualty organizations or, at such time as they may be available, from aggregate industry financial information determined by the NAIC. (8) Mid/low investment quality bonds-All bonds designated as Class 3, 4, 5, or 6 and properly reported as such on Schedule D-Part 1A of the association blank. (9) Policyholders' surplus-The total capital and surplus of a stock property/casualty insurer. (10) Stock property/casualty insurers-All insurance companies or other entities admitted to do business in this state, authorized to write property or casualty insurance in this state, and required by any state to have capital stock issued and outstanding. (b) Scope. This section applies to all domestic, foreign, and alien stock property/casualty companies subject to the provisions of the Insurance Code, Articles 2.02, 2.20, and 21.44, excluding those insurers that are only authorized to write mortgage guaranty insurance in all states in which they are licensed. (c) Purpose. The purpose of implementing this risk-based capital and surplus provision is to require a minimum level of policyholders' surplus appropriate to the underwriting, financial, and investment risks assumed by an insurer. (d) Application of Form RBC/PC. In determining the minimum risk-based capital and surplus, the department will utilize the form entitled "Minimum Risk-Based Capital and Surplus Requirements for Capital Stock Property and Casualty Companies Licensed in Texas," hereinafter referred to as Form RBC/PC. Each insurer may use the form, but no insurer is required to file a completed form with the department, unless specifically requested to do so by the department. (1) A calculation of the minimum level of policyholders' surplus appropriate to the underwriting, financial, and investment risks assumed by a capital stock insurer subject to this section shall be made by the Texas Department of Insurance in accordance with Form RBC/PC. (2) Form RBC/PC provides for the calculation of three ratios and for the comparison of the insurer's results of those ratios with those of the industry averages as defined in this section. (A) Ratio 1 determines the percentage of net written premium (limited to a minimum of zero) plus total liabilities (limited to a minimum of zero) to adjusted policyholders' surplus as defined in this section. Each company's liabilities and policyholders' surplus shall be adjusted as provided in paragraph (4)(A)(i) of this subsection. (B) Ratio 2 determines the percentage of adjusted gross written premium, as defined in this section, to net written premium. (C) Ratio 3 determines the percentage of the total of stocks, mortgage loans, real estate, mid/low investment quality bonds, as defined in subsection (a)(8) of this section, collateral loans, and other invested assets to policyholders' surplus. (3) Calculations in Form RBC/PC determine required policyholders' surplus to the extent that the sum of the insurer's results for ratios 1, 2, and 3 exceed the sum of: (A) twice the industry average, as defined in this section, for ratio 1, limited to a maximum of 14.00; (B) the industry average, as defined in this section, for ratio 2; and (C) the industry average, as defined in this section, for ratio 3. (4) Exceptions to the calculations in Form RBC/PC may apply in the following situations. (A) Ratio 1. (i) When loss reserve discounts, other than as respects fixed and determinable payments such as those emanating from workers' compensation tabular indemnity reserves and long-term disability claims for which specific segregated investments have been established, have reduced liabilities as of December 31, 1991, any such discounts carried forward to 1992 or subsequent years shall be added back to the company's total liabilities and shall be deducted from the company's policyholders' surplus at the applicable percentage for purposes of the calculation. The applicable percentage of such discounts shall be 20% for 1992, 40% for 1993, 60% for 1994, 80% for 1995, and 100% for 1996 and subsequent years. In no event shall an insurer's liabilities be reduced, and policyholders' surplus increased, for discounts on loss reserves established on or after January 1, 1992, except as respects fixed and determinable payments such as those emanating from workers' compensation tabular indemnity reserves and long- term disability claims, and in no event shall the dollar amount of discounts that reduced liabilities and increased policyholders' surplus as of December 31, 1991, be increased on or after January 1, 1992. The commissioner shall have the authority to determine the appropriateness of, and may disapprove, discounts taken as respects fixed and determinable payments such as those emanating from workers' compensation tabular indemnity reserves and long-term disability claims. (ii) When a company's result for Ratio 1 is zero, a ratio of .01 shall be used in completing FORM RBC/PC. (B) Ratio 2. (i) When net written premium is zero or negative, the company's ratio 2 will be the ratio of adjusted gross written premium, as defined in subsection (a)(1) of this section, to policyholders' surplus adjusted as provided in subparagraph (d)(4)(A)(i) of this paragraph. (ii) When net written premium is less than policyholders' surplus, adjusted as provided in subparaph (A)(i) of this paragraph, the company's ratio 2 will be the ratio of adjusted gross written premium, as defined in subsection (a)(1) of this section, to policyholders' surplus, adjusted as provided in subparagraph (A)(i) of this paragraph. (iii) When adjusted gross written premium, as defined in subsection (a)(1) of this section, is zero or negative, the company's ratio 2 will be zero. (iv) When ratio 2 is critical to the determination of whether a company meets its minimum risk-based capital and surplus requirement, the ratio may be reduced, subject to the commissioner's approval, by reducing direct written premiums by the portion of crop insurance premiums 100% reinsured by the Federal Crop Insurance Corporation, by the portion of flood premiums 100% reinsured by the Federal Emergency Management Act, or by the portion of premiums reinsured by pools to the extent that participation is mandated by a state. (5) In the event that a risk-based capital and surplus model act for property/casualty insurers is promulgated by the NAIC subsequent to adoption of this section, nothing in this section shall preclude the Board from considering any formulas in that act to replace formulas contained in Form RBC/PC. [graphic] (e) Form RBC/PC, to be utilized by the department in calculating risk-based capital and surplus requirements and described in subsection (d) of this section, contains the provisions set forth as follows: (f) Calculation using form. After the end of each calendar year, or more frequently if the commissioner deems it necessary, the formulas contained in Form RBC/PC shall be used to calculate minimum policyholders' surplus based on the specified financial information as filed with the NAIC or as available through the examination or financial analysis process. Financial information required to complete calculations in Form RBC/PC shall include the same information for 1992 and subsequent years, regardless of changes in page, line, or column number of the association statement blanks adopted by the board or otherwise requested by the department. (g) Actions of Commissioner. The commissioner may take the following actions against an insurer who fails to maintain, at a minimum, policyholders' surplus equivalent to the amount calculated in accordance with Form RBC/PC: (1) order the insurer to cease writing new business; (2) place the insurer in supervision or conservation; (3) determine the insurer to be in hazardous financial condition as provided by the Insurance Code, Article 1.32 and sec.8.3 of this title (relating to Hazardous Conditions); (4) determine the insurer to be impaired as provided by the Insurance Code, Article 1.10, sec.5; or (5) apply any other sanctions provided by the Texas Insurance Code or 28 Texas Administrative Code. (h) Effectiveness. For any insurer failing to have the minimum risk-based capital and surplus calculated in accordance with this section as of December 31, 1992, such insurer shall have until June 30, 1993 to demonstrate to the Commissioner's satisfaction that any such deficiency has been corrected, and the previous actions shall not be taken prior to June 30, 1993, unless the insurer is otherwise found to be in hazardous financial condition by the Commissioner. (i) Limitations. In no event shall the requirements of this section reduce the amount of capital and surplus otherwise required by provisions of the Texas Insurance Code or the Texas Administrative Code, or by authority of the commissioner of insurance. 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 December 1, 1992. TRD-9216016 Linda K. von Quintus-Dorn Chief Clerk Texas Department of Insurance Effective date: December 31, 1992 Proposal publication date: July 28, 1992 For further information, please call: (512) 463-6327 TITLE 40. SOCIAL SERVICES AND ASSISTANCE Part I. Texas Department of Human Services Chapter 48. Community Care for Aged and Disabled Case Management 40 TAC sec.48.3906 The Texas Department of Human Services (DHS) adopts new sec.48.3906, concerning case management, without changes to the proposed text as published in the October 30, 1992, issue of the Texas Register (17 TexReg 7655). The justification for the new section is to allow adult foster care clients to keep money for personal needs and medical expenses. In addition, clients must also be allowed to keep at least one-half of any cost-of-living adjustment received on or after January 1, 1993. The new section will function by ensuring that adult foster care clients have sufficient funds for their monthly personal needs and medical expenses. No comments were received regarding adoption of the new section. The new section is adopted under the Human Resources Code, Title 2, Chapters 22 and 32, which provides the department with the authority to administer public and medical assistance programs. 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 December 2, 1992. TRD-9216044 Nancy Murphy Agency liaison, Policy and Document Support Texas Department of Human Services Effective date: January 1, 1993 Proposal publication date: October 30, 1992 For further information, please call: (512) 450-3765