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STATE OF OREGON

DEPARTMENT OF CONSUMER AND BUSINESS SERVICES

INSURANCE DIVISION

REPORT OF MARKET CONDUCT EXAMINATION

OF

KAISER FOUNDATION HEALTH PLAN OF THE NORTHWEST
DBA KAISER PERMANENTE
PORTLAND, OREGON


NAIC COMPANY CODE 95540


AS OF

JUNE 30, 1996


TABLE OF CONTENTS


Page
Salutation 3
Scope of Examination 4
Description of Company 5
Management and Control 5
Advertising/Marketing Methods 7
Complaint Handling Practices 16
Underwriting 23
Claims Handling Practices 49
Administration/Provider Relations 61
Policyholder Treatment 69
Compliance with Prior Examination Recommendations 78
Conclusion/Recommendations 78
Management Affirmation 80
Acknowledgment 81
Affidavit 82


February 10, 1997

Honorable Kerry Barnett, Director
Department of Consumer and Business Services
State of Oregon
350 Winter Street NE, Room 440-4
Salem, Oregon 97310

Dear Director:

In accordance with your instructions and pursuant to ORS 731.300, we have examined
the business affairs of
Kaiser Foundation Health Plan Of The Northwest
dba Kaiser Permanente
500 NE Multnomah Street, Suite 100
Portland, Oregon 97232-2099


NAIC Company Code 95540
herein after referred to as the “Company.” The following report of examination is
respectfully submitted.


SCOPE OF EXAMINATION


The market conduct examination of the Company was conducted as of June 30, 1996
covering the three-year period then ended, and included a review of material
transactions or events which occurred subsequent to the examination cut-off date and
were noted during the examination.

The last market conduct examination of the Company was as of September 30, 1993.
The examination of the Company was conducted pursuant to ORS 731.300 and in
accordance with procedures and guidelines outlined in the Market Conduct
Examination Handbook as adopted by the National Association of Insurance
Commissioners (NAIC) and/or are consistent with the market conduct program
established by the Oregon Insurance Division. The purpose was to determine the
Company's ability to fulfill and manner of fulfillment of its obligations, the nature of its
operations, whether it has given proper treatment to policyholders, and its compliance
with the Oregon Insurance Code and Administrative Rules.

In order to determine the practices and procedures of the Company's operations, one or
more of the following procedures was performed in each phase:

1. A sample of files was selected from listings provided by the Company.
Each file was then reviewed by the examiner.
2. The procedure manuals and/or memorandum were evaluated.
3. The Company responded to a series of questions regarding the phase being
examined.
The examination was comprised of the following 6 phases:

Complaint Handling Advertising/Marketing Methods
Underwriting Administration/Provider Relations
Claims Handling Practices Policyholder Treatment

DESCRIPTION OF COMPANY


Kaiser Foundation Health Plan of the Northwest (formerly Kaiser Foundation Health
Plan of Oregon) is affiliated with the Kaiser Foundation Health Plan, Inc., a California
corporation. The Company is a non-profit, federally qualified Health Maintenance
Organization (HMO) under the Health Maintenance Organization Act of 1973, 42

U.S.C. 300e et seq. The Company was a Washington corporation from 1942 through
1981. It was incorporated under the provisions of ORS Chapter 65 on October 19, 1981
and received its Certificate of Authority on December 30, 1981. The Company is
authorized to transact the business of accepting the prepayment of health care services
as a health care service contractor under the provisions of ORS Chapter 750. On
November 26, 1984, the name was changed from Kaiser Foundation Health Plan of
Oregon to Kaiser Foundation Health Plan of the Northwest. Effective February 13,
1995, the Plan adopted an assumed business name of Kaiser Permanente. The
Company is authorized to transact business in Oregon and Washington.
MANAGEMENT AND CONTROL
Board of Directors

The Board of Directors is comprised of 14 directors. In addition to functioning as a
whole, the Board of Directors are segregated into the following committees as permitted
by the Company’s Bylaws as of December 31, 1995:

Executive Committee
Governance and Conduct of Business Committee
Quality Committee
Strategic Planning Committee


Members of the Board of Directors, duly elected and serving as of December 31, 1995
were:

Name and Address Business Affiliation Representative
Eugene E. Trefethen, Jr.
300 Lakeside Drive
Oakland, CA 94612
Retired Public
David M. Lawrence, MD
One Sea View Avenue
Piedmont, CA 94611
Chairman and CEO
Kaiser Foundation
Health Plan, Inc.
Medical
James A. Vohs
17 Westminster Drive
Oakland, CA 94618
Retired Public
Robert J. Erickson
2101 Shoreline Drive #487
Alameda, CA 94501
Senior Vice President
Kaiser Foundation
Health Plan, Inc.
Public
David R. Andrews
250 Hillside Avenue
Mill Valley, CA 94941
Attorney
Chairman- McCutchen,
Doyle, Brown & Enersen
Public
Thomas W. Chapman, M.P.H
6613 Tulip Hill Terrace
Bethesda, MD 20816
CEO - George Washington
University Hospital
Public
William H. Foege, MD
2191 El Dorado Drive, N.E.
Atlanta, GA 30345
Fellow for Health Policy
The Carter Center
Medical
Daniel P. Garcia
920 Mt. Washington Drive
Los Angeles, CA 90065
Senior Vice President - Warner
Brothers, Inc.
Public
Henry M. Kaiser
148 Bonita
Piedmont, CA 94611
Managing General Partner
Pacific Capital Partners
Public
John D. Miller
12007 Excelsior Way
Dallas, TX 75230
Retired Public
Dean O. Morton
25857 Westwind Way
Los Altos Hills, CA 94922
Retired Public
Mary E. Reres, Ed. D.
6410 Surfside Way
Malibu, CA 90265
Retired Public


Name and Address Business Affiliation Representative
Robert L. Ridgley
4927 SW Downsview Court
Portland, OR 97221
President & CEO
Northwest Natural Gas
Company
Public
Daniel O. Wagster
11903 Skipper Court
Penn Valley, CA 95946
Retired Public

Officers

Operating management of the Company as of December 31, 1995, was under the
direction of the following principal officers:

Michael H. Katcher President
Richard G. Barnaby Executive Vice President
Susan E. Porth CFO, Senior Vice President-Corporate Services
Robert M. Crane Senior Vice President-Interregional Services
Jerry Fleming Senior Vice President & Director of Program Development
James A. Lane Senior Vice President
Kirk E. Miller Senior Vice President, General Counsel & Secretary
James B. Williams Senior Vice President-Strategic Development & Human Resources
Steven R. Zatkin Senior Vice President-Government Relations

At least one-third of the members of the Board of Directors are representatives of the
public pursuant to the provisions of ORS 750.015(1). It appears that, overall, officers
and members of the Board are trustworthy, insurance experienced and possess the
ability to direct the affairs of the Company, hence, meet the qualifications to hold a
Certificate of Authority under ORS 731.386(1).

ADVERTISING/MARKETING METHODS

An independent advertising agency is used by the Company for all agency services
including strategic planning, creative production, and media buying.

The Company’s advertising oversight committee consists of the division president,
regional medical director, assistant regional medical director, health plan manager,
sales and marketing manager, a representative from the advertising agency and the
director of advertising.

Prior to the initiation of each major campaign, the advertising oversight committee
meets to determine strategic objectives. The director of advertising and the advertising
agency have the responsibility for creative execution of the agreed strategies, and
submit the advertising to the advertising oversight committee during various phases of
production and at completion.

Advertising results are tracked and reported to the advertising oversight committee
and become part of the decision process for future strategic planning.

All advertising used by the Company is created by the independent advertising agency
through the process described above. Agents or agencies are not permitted to develop
their own advertising using the Company name and no approval process for such
advertising exists.

Findings

A reduced emphasis review of only the print media used by the Company during the
examination period was conducted. Print media is defined as newspaper or magazine
advertisements as well as other printed advertisements. It does not include radio,
television or billboard advertising. The entire population was examined and was
distributed as follows:

Type Number Percentage
Newspaper 8 30.8%
Professional Magazine 10 38.5
Leaflet 3 11.5
Memorandum 2 7.7
Brochure 3 11.5
Total 26 100.0%

The items were tested for compliance with the following standards based upon Oregon
Revised Statutes or Oregon Administrative Rules. The text of the laws may be found in
Appendix I following the report.

Health Insurance Advertising Standard #1 - The Company’s advertising does not
contain false, deceptive or misleading statements. See ORS 746.110, page A-18 and
OAR 836-20-220(1), page A-23.

Findings
92% compliance. Two advertisements (8%) appear to fail this standard.

Advertisement form number 335M-94/7-94 is a brochure for the Company’s Added
Choice plan which states “For in-network care they become members of Kaiser
Permanente.” Membership does not become effective when in-network care is
delivered, it becomes effective when the contract is issued. The Company has indicated
it will discontinue use of this brochure as soon as the new product literature is
completed, but in any event, no later than June 30, 1997.

The other advertisement which failed this standard was run in a professional magazine
and no identifying form number was assigned by the Company. That advertisement
implied a member formed her own group in order to buy insurance. The text of the
advertisement states in part, “...She created her own group to get on the Kaiser
Permanente plan.” and, “...So I talked it up and got two other employees to join me. We
started our own group, and pretty soon the word spread...” The Company indicated the
intent of the advertisement is not to imply an employer group was formed solely for the
purpose of buying insurance, but was to reflect that before the employer in question
would offer Kaiser Permanente as a choice for its employees, a minimum of three
employees of the employer would have to express interest. The Company has indicated
it currently has discontinued the use of this ad. If the Company does use this ad in the
future, it will be modified to exclude reference to “starting or creating her own group.”

I recommend the Company’s advertising not contain false, deceptive or misleading
statements in accordance with ORS 746.110 and OAR 836-20-220(1).

Health Insurance Advertising Standard #2 - The Company’s advertising does not
contain words or phrases whose definition is clear only by implication or by familiarity
with insurance terminology. See OAR 836-20-220(2), page A-23.

Findings
100% compliance.

Health Insurance Advertising Standard #3 - The Company does not use prohibited
words or illustrations. See OAR 836-20-225(1)(b), page A-24.

Findings
100% compliance.

Health Insurance Advertising Standard #4 - The Company’s advertising does not
mislead the consumer by the omission of information relating to the product. See OAR
836-20-225(1)(a), page A-23.

Findings
100% compliance.

Health Insurance Advertising Standard #5 - The Company’s advertising contains the
name of the actual insurer and the form number of the policy advertised. See ORS
731.430(1), page A-1 and OAR 836-20-260(1), page A-26.

Findings
100% compliance.

Health Insurance Advertising Standard #6 - The Company’s advertising discloses that
benefit amounts depend upon plan selected and premium will vary with the amount of
benefits chosen. See OAR 836-20-245(1), page A-26.

Findings
100% compliance.

Health Insurance Advertising Standard #7 - The Company’s advertisements which
refer to specific benefit amounts or cost of the policy or specific benefits also clearly
disclose the limitations, exceptions, and reductions affecting the basic provisions of the
policy. See OAR 836-20-225(2), page A-24.

Findings
100% compliance.

Health Insurance Advertising Standard #8 - The Company’s advertisements which
refer to specific benefit amounts also clearly disclose provisions relating to renewal,
cancellation, termination and any benefit modification. See OAR 836-20-230, page
A-25.

Findings
100% compliance.

Health Insurance Advertising Standard #9 -Third party endorsements and
testimonials must be genuine and be accurately reproduced. See OAR 836-20-235(1),
page A-25.

Findings
100% of the sample to which this standard applies is in compliance.


Health Insurance Advertising Standard #10 - If the endorsement or testimonial is made
by a person with a financial interest in the insurer, that fact shall be disclosed in the
advertisement. See OAR 836-20-235(2), page A-25.

Findings
100% of the sample to which this standard applies is in compliance.


Health Insurance Advertising Standard #11 - When a testimonial refers to a benefit
received under a policy, all specific data and pertinent information shall be retained for
a period of 4 years or until the filing of next report of examination, whichever is longer.
See OAR 836-20-235(4), page A-25.

Findings
This standard is not applicable since none of the advertising reviewed contained a
testimonial referring to a benefit received under a policy.

Health Insurance Advertising Standard #12 - The Company’s advertising containing
statistical information accurately reflects all of the relevant facts and clearly identifies
the policy to which the statistics pertain. See OAR 836-20-240(1), page A-25.

Findings
100% compliance.

Health Insurance Advertising Standard #13 - The Company’s advertising does not
exaggerate claim settlement amounts and no unusual amounts paid for unique claims
are used. See OAR 836-20-240(2), page A-25.

Findings
100% compliance.

Health Insurance Advertising Standard #14 - The Company’s advertising which
contains statistics also identifies the source of such statistical information. See OAR
836-20-240(3), page A-26.

Findings
62% compliance. Ten advertisements (38%) of the random sample failed to meet this
standard.

Nine of the advertisements (82% of those which failed) compared the Company’s
number of board certified primary care physicians to a national average. The Company
has discontinued use of 7 of these ads and has stated it will include the source if the
other 2 ads are reprinted.

Three ads (27% of those which failed) indicate the Company has the lowest complaint
index of any of Oregon’s ten largest insurers. Two of these ads also compared the
Company’s number of board certified primary care physicians to a national average.
The Company stated it has discontinued use of 2 of these ads, and will discontinue use
of the other advertisement which failed this standard.

None of the advertisements which failed this standard identified the source of the
statistics used.

I recommend the Company’s advertising which contains statistics also identify the
source of such statistical information in accordance with OAR 836-20-240(3).

Health Insurance Advertising Standard #15 - The Company’s advertising does not
make unfair or incomplete product comparisons and does not make disparaging
remarks about other insurers or other marketing methods. See OAR 836-20-250, page
A-26.

Findings
100% compliance.

Health Insurance Advertising Standard #16 - Company advertising stating the insurer
or product is approved or licensed by the state also qualifies the statement with the
text, “This does not constitute a recommendation or endorsement of (this company)
(this policy)” or equivalent words. See OAR 836-20-255(3), page A-26.

Findings
This standard is not applicable since none of the advertising reviewed stated the
insurer or product is approved or licensed by the state.

Health Insurance Advertising Standard #17 - Company advertising does not state or
imply that prospective insureds become group or quasi group members covered under a
group policy and enjoy special rate or underwriting advantages unless that is the case.
See OAR 836-20-265, page A-26.

Findings
100% compliance.

Health Insurance Advertising Standard #18 - Company advertising contains only true
and factual information regarding the Company’s corporate structure or financial
status. If a reference to a commercial rating system is used, it clearly indicates the
purpose of the recommendation and limitations of the scope and extent of the
recommendation. See OAR 836-20-275, page A-26.

Findings
0% compliance. 100% of the sample to which this standard applies (1 ad) failed this
standard. It stated the Company has the best long-term credit rating of all HMOs in
the United States. The Company was unable to verify the source of this information to
substantiate this statement. The Company has indicated it will discontinue use of this
ad once the product intended to replace the policy originally advertised has been
approved and is ready for marketing, but in any event, no later than June 30, 1997.

I recommend the Company discontinue use of the advertisement referenced above and
that Company advertising contain only true and factual information regarding the
Company’s corporate structure or financial status and if references to commercial
rating systems are used, the purpose of the recommendation and limitations of the
scope and extent of the recommendation are clearly indicated in accordance with OAR
836-20-275.

Health Insurance Advertising Standard #19 - All information required to be included in
advertising is conspicuous and is in close conjunction with the statements to which the
information relates. See OAR 836-20-215, page A-23.

Findings
100% compliance.

Global Advertising Standards

Global Advertising Standard #1 - The Company maintains a system of control over the
content, form, and method of presentation, distribution, and dissemination of all
advertising of its policies. See OAR 836-20-205(2), page A-23.

Findings
100% compliance.

Global Advertising Standard #2 - The Company maintains at its home office a complete
file containing every advertisement prepared for its individual policies, and typical
advertisements prepared for its blanket, franchise and group policies. A notation is
attached to each advertisement indicating the manner and extent of distribution and
the form number of any individual policy advertised. See OAR 836-20-280(1), page
A-27.

Findings
100% compliance.

Global Advertising Standard #3 - The Company has filed the required Statement of
Compliance with its annual statement. See OAR 836-20-280(2), page A-27.

Findings
100% compliance.

COMPLAINT HANDLING PRACTICES
The Company recognizes and tracks concerns as either complaints, grievances and
appeals, or Insurance Division inquiries.

“Complaints” are defined by the Company as oral dissatisfaction with care or services.
Customers who have a complaint are acknowledged immediately or within 24 hours (or
next working day) and initial information or resolution is provided. If a response to the
complaint cannot occur immediately, the customer is informed of the reason for the
delay and approximate time when a response will be given. The customer is updated on
a frequent basis. The customer’s perspective and reaction to the incident prompting the
complaint is recorded in a database titled “Customer Complaint System” which is used
to improve policies and processes, and to provide individual performance feedback. A
summary of the reasons for complaints made during this examination period is shown
below.

Reason Number Percentage

Access/Appointment 1564 13.0%
Access/Clinician 92 .8
Access/Telephone 551 5.0
Administrative 920 8.0
Benefits 1000 8.0
Building/Environment/Parking/Safety 153 1.0
Communication/Attitude 2317 19.0
Eligibility 199 2.0
Physical Attire/Personal Hygiene 24 .2
Quality of Care 3217 26.0
Quality of Service 2127 17.0
Total 12,164 100.0%

Customers have the right to appeal an adverse decision to the next administrative level
for a second, independent review and to file a grievance if not satisfied with the
response received from the next administrative level. Customers who are not satisfied
with the Company’s response to the initial complaint are informed of this appeal
process.

The Company’s policy and procedures for reviewing grievances and appeals establishes
standards for timeliness in responding to these communications. In July of 1996 the
Company implemented a procedure to automatically acknowledge receipt of internal
complaints and provide an approximate time for completion. The Company’s standard
is to acknowledge receipt of these complaints within 24 hours or the next working day.
Initial grievances are completed within 21 calendar days upon receipt of all necessary
information. Grievances filed at the next administrative level are to be completed
within 45 calendar days after receipt of all necessary information.

Insurance Division inquiries are routed to the member relations department. The
inquiries are entered in the complaint system and flagged as Insurance Division
inquiries. Each inquiry is researched by a member relations representative and a
response is prepared and mailed to the Insurance Division within 15 work days after
receipt. A committee comprised of management personnel meets on a quarterly basis
to review the Insurance Division inquiries and Company responses thereto. This
committee may make recommendations to the Company for procedural changes, if
warranted, based upon the nature and content of these inquiries and their resolutions.

Findings
Insurance Division Inquiries

From a total population of 63 insurance division inquiries received during the
examination period, a random sample of 50 items (79%) was selected for review.
Summaries of the reasons for the inquiries and their dispositions are shown below.

Reason Number Percentage

Claims Procedure/Practice 1 2%
Coordinate with Workers Comp/Auto 2 4
Coordination of Benefits 2 4
Coverage Not In Force at Date of Loss 2 4
Delay in Claim Handling 1 2
Delay in Issuance of Policy 1 2
Denial Based on Emergency Care Not Applicable 1 2
Denial Based on NonProvider Services 12 24
Denial of Ambulance Service/NonEmergency 5 10
Denial of Claim (Miscellaneous) 2 4
Dissatisfaction with Claim Forms/Letters 1 2
Dissatisfaction with Company Procedure 2 4
Dissatisfaction with Benefits Paid 2 4
Error or Incorrect Information 1 2
Failure of Consumer to Respond 1 2
Failure to Obtain Appointment 1 2
Objection to Treatment/Personal Information 1 2
Poor Service 4 8
Premiums and Rating 1 2
Problem with Billing 1 2
Problem with Group Conversion 1 2
Problem with Medical Records Fee Assessment 1 2
Refusal to Insure 2 4
Treatment Excluded by Policy 1 2
Underwriting Practice/Procedure 1 2
Total 50 100%

Dispositions Number Percentage

Corrective Action Taken 15 30%
Satisfactory Explanation 35 70
Total 50 100%

The items were tested for compliance with the following standards based on Oregon

Revised Statutes or Oregon Administrative Rules. The text of the law may be found in

Appendix I following the report.

Insurance Division Inquiries Standard #1 - The Company furnished a response within

15 working days of an inquiry from the Commissioner. See ORS 731.296, page A-1 and

OAR 836-80-225(2), page A-39.

Findings
100% compliance.

Number of Days to Acknowledge Number Percentage
1-15 50 100%
16-30 0 0
31-45 0 0
Over 45 0 0
Total 50 100%

Insurance Division Inquiries Standard #2 - The Company’s response was adequate and
conclusive. See OAR 836-80-225(2), page A-39.

Findings
98% compliance. One case failed to meet this standard. It was a claim for ambulance
services which was originally denied. The Company determined the patient could have
been transported to the emergency room via a non-medical form of transportation. The
member appealed the claim denial. The Company indicated it reviewed the medical
records and continued to deny benefits. The member sent a second request for payment
and contacted the Oregon Insurance Division as well. The Company’s first response to
the Insurance Division indicated the second appeal would be reviewed by the health
plan review committee. The Insurance Division sent a second letter asking the
Company to respond to questions raised in the first inquiry that were not answered.
The Company wrote to the member to inform her of the Company’s decision to deny
benefits. A copy of that letter was sent to the Insurance Division. The Insurance
Division wrote to the Company again asking for information supporting the denial. The
Company responded to the Insurance Division’s third inquiry indicating the case had
been referred to the director of contracts. As a result of that review, the Company
overturned the denial and paid the claim. From the medical records reviewed by this
examiner, it appears the medical records do not support the original decision to deny
this benefit. The discharge summary dictated by the treating emergency room
physician states the patient had symptoms posing immediate significant threat.

A 2% failure percentage does not appear to constitute a pattern. Therefore, no
recommendation is warranted.

Internal Complaints

From a total population of 2,736 internal complaints received during the examination
period, a random sample of 50 items (.02%) was selected for review. Summaries of the
reasons for the complaints and their dispositions are shown below.

Reason Number Percentage

Delay in Policy Issuance 1 2%
Claim Exceeds Policy Limits 1 2
Claim Not Submitted Within Time Limit 1 2
Coordinate with Workers’ Comp/Auto 1 2
Coordination of Benefits 1 2
Coverage Not in Force At Date of Loss 2 4
Denial Based on Emergency Care Not Applicable 2 4
Denial Based on Non-Provider Services 18 36
Denial of Ambulance Service/Non Emergency 2 4
Denial of Claim (Miscellaneous) 2 4
Dissatisfaction with Benefits Paid 7 14
Miscellaneous 2 4
Treatment Excluded by Policy 1 2
Error or Incorrect Information 1 2
Poor Service 5 10
Problem with Billing 2 4
Not Previously Described 1 2
Total 50 100%

Disposition Number Percentage

Corrective Action Taken 27 54%
Satisfactory Explanation Given 23 46
Total 50 100%


The items were tested for compliance with the following standards based on Oregon
Revised Statutes or Oregon Administrative Rules. The text of the law may be found in
Appendix I following the report.

Internal Complaints Standard #1 - The Company furnished a response within 20
working days of any inquiry from an insured. See OAR 836-80-225(3), page A-39.

Findings
96% compliance. Two cases (4%) appear to fail this standard since the Company did
not respond to the complaint within 20 working days. In July 1996 the Company
implemented a procedure to automatically acknowledge receipt of internal complaints
and give an approximate time for completion. The Company’s standard is to
acknowledge receipt of these complaints within 24 hours or the next working day. The
2 complaints which appear to fail this standard were received by the Company prior to
July 1996.

A failure rate of 4% does not appear to demonstrate a pattern and no recommendation
is warranted.

Number of Days to Acknowledge Number Percentage
1-20 48 96%
21-30 2 4
31-45 0 0
Over 45 0 0
Total 50 100%

Internal Complaints Standard #2 - The Company’s response was appropriate. See OAR
836-80-225(3), page A-39.

Findings
100% compliance.

UNDERWRITING


Large Group, Individual, and Small Employer Health Insurance (SEHI) underwriting
were reviewed during this examination. Results of the examination of each of these
product lines are presented separately.

Large Group

Kaiser Permanente is a federally qualified, group practice health maintenance
organization (HMO). In addition to the HMO plans offered to both SEHI and large
groups, the Company offers a point of service plan called Added Choice. A catastrophic
protection plan and a dental plan are also available.

The Company is licensed to transact the business of accepting the prepayment of health
care services as a health care service contractor under the provisions of ORS Chapter

750.
The group commercial products are distributed through licensed agents. Additionally,
all of the Company’s new sales representatives and account management
representatives are licensed with the State of Oregon. Approximately 80% of the group
prospects are generated by licensed agents. The remaining prospects are inquiries
made directly by group employers.

The Company employs a “team” approach to sales and service of its group clients and
agents. New sales representatives are assigned a designated number of agents within
the Company’s service area. Essentially, the representatives provide the necessary
resources to assist the licensed agent in successfully representing the Company.

Agents identify sales opportunities in advance of an employer’s insurance anniversary
date and contact the Company to explore benefit plan options that would be available to
their clients. Many of these prospects are generated as a result of Kaiser sales
representatives agent training and service activities.

The agents submit the information specific to their client and indicate the requirements
for the group quote. The information is a collection of employer information, in-force
benefit plan and competitive rate information and utilization experience.

The Company representative works closely with the agent and/or group to develop a
quotation. A rating analyst reviews the information provided by the agent and
produces a premium rating and benefit plan design consistent with the Company’s
accepted underwriting guidelines. A proposal is prepared and delivered to the
requesting agent and/or group client. If the proposal is accepted, the presale process is
completed with an advisement of the sale.

The agent and/or Company sales representative meets with the employer to discuss the
enrollment process. Many times this includes employee meetings to discuss the
Company’s benefit plan, review access to the Company’s healthcare delivery system and
answer questions the employees might have in connection with the plan. Employees
are provided enrollment forms for completion and signature.

The group enrollment forms are processed by the Company and generate employee ID
cards and other employee materials. A group contract is generated and delivered to the
group along with a premium billing.

Groups are offered only a monthly list bill method of premium payment. The Company
does not maintain a listing of industries excluded from coverage.

Findings

The results of this phase of the examination are presented in 3 parts: Large Group
Issued, Large Group Terminated and Forms.

Large Group Issued

From a total population of 115 large groups issued, an initial random sample of 50
(44%) was selected for review.

The items were tested for compliance with the following standards based upon Oregon
Revised Statutes or Oregon Administrative Rules. The text of the laws may be found in
Appendix I following the report.

Standard #5 was excluded from this examination since the law upon which it is based
did not become effective until after the examination period.

Group Health Underwriting - Issued Business Standard #1 - The Company does not
unfairly discriminate between individuals of the same class and equal expectation of
life, or between risks of essentially the same degree of hazard, in the availability of
insurance, application of rates or other terms or conditions of the policy. See ORS
746.015(1), page A-17.

Findings
100% compliance.

Group Health Underwriting - Issued Business Standard #2 - The group does not meet
the definition of a small employer health plan. See ORS 743.730(9), page A-8.

Findings
98% compliance. One file (2%) issued as a large group was actually a small employer
group. Please refer to the SEHI portion of this phase for additional information
regarding the Company’s handling of small groups.

A failure rate of 2% does not represent a pattern and no recommendation is made.

Group Health Underwriting - Issued Business Standard #3 - The group meets the
definition of a true group. See ORS 743.522, page A-5.

Findings
100% compliance.

Group Health Underwriting - Issued Business Standard #4 - The insurer furnished to
the policyholder for delivery to each member of the insured group a statement in
summary form of the essential features of the insurance coverage. See ORS 743.528(2),
page A-7.

Findings
100% compliance.

Group Health Underwriting - Issued Business Standard #6 - The Company gives notice
to existing insurers when applications for replacement coverage have been received.
See OAR 836-52-830, page A-33.

Findings
2% compliance. It appears 98% of the sample (49 files) failed this standard. The
Company acknowledged it is not in compliance with this standard on a global basis and
will take corrective action by April 1, 1997. A 2% compliance rate was noted since
documentation of the required notice was found in one of the files reviewed.

I recommend the Company give notice to existing insurers when applications for
replacement coverage have been received in accordance with OAR 836-52-830.

Large Group Canceled

From a total population of 543 large groups terminated, a random sample of 50 (9%)
was selected for review.

The items were tested for compliance with the following standard based upon Oregon
Revised Statutes or Oregon Administrative Rules. The text of the laws may be found in
Appendix I following the report.

Group Underwriting - Cancellations Standard #1 - If a policy was terminated by the
Company without replacement, proper notice was given. See ORS 743.560, page A-7,
OAR 836-52-810, page A-33 and OAR 836-52-860, page A-33.

Findings
100% compliance.

Reason for Cancellation Number Percentage
Replacement 44 88%
Group out of business 1 2
Nonpayment of premium 5 10
Total 50 100%

Forms

Policy form numbers were recorded from the underwriting files. Oregon Insurance
Division approval dates for the forms used were compared with policy issue dates. A
total of 6 forms issued to 50 groups were reviewed.

Items were tested for compliance with the following standard based on Oregon Revised
Statutes and Oregon Administrative Rules. The complete text of these laws and
regulations may be found in Appendix I which follows the report.

Forms Standard #1 - Policy forms are filed with and approval obtained from the Oregon
Insurance Division prior to use in this state. See ORS 742.003, page A-2.

Findings
100% compliance.

Individual

Membership accounting mails application materials with benefits and premium
brochures to individuals who express an interest in obtaining individual coverage
through the Company.

A $10 application fee (per individual or family) is required with each application
submitted (the application fee was not required after June 1996). Enrollment
specialists conduct initial application review for completeness and compare medical
history questionnaire statements with Kaiser Permanente eligibility guidelines. If
further information is needed, the enrollment specialist is also responsible for obtaining
it.

If the applicant is medically qualified, a health record number is assigned and entered
into the Company’s computer system. A letter of acceptance is sent to the insured
along with the contract. If an applicant’s medical history is not considered acceptable,
a rejection letter is sent stating the specific reason for denial and allowing 60 days to
submit information to substantiate cause for further review.

Findings

The results of the review of the individual underwriting phase of this examination are
presented in 4 parts: New business issued, applications declined, forms and rates.

Issued

From a total population of 4,237 contracts issued during the examination period, an
initial sample of 50 (1.2%) was selected. The Company provided its original enrollment
files for the examiner’s review. The files did not include reference to actual policy form
numbers or premium rates charged.

Each sample file was tested for compliance with the following standards based on
Oregon Revised Statutes and Oregon Administrative Rules. The complete text of these
laws and regulations may be found in Appendix I which follows the report.

Individual Health Underwriting - Issued Business Standard #1 -Records are adequate
and accessible. See ORS 733.170, page A-2.

Findings
100% compliance.

Individual Health Underwriting - Issued Business Standard #2 - Signed consent of the
proposed insured is obtained. See ORS 743.027, page A-3.

Findings
100% compliance.

Individual Health Underwriting - Issued Business Standard #3 - Written consent of
applicant is obtained when alterations to application are made. See ORS 743.039(2),
page A-3.

Findings
100% compliance.

Individual Health Underwriting - Issued Business Standard #4 - Applicant is informed
of option to request coverage for alcoholism treatment. See ORS 743.412(1), page A-3.

Findings
The standard was waived. Alcohol dependency coverage is included in the contracts.
Therefore, everyone accepted for membership is provided with benefits and no separate
election is necessary.

Individual Health Underwriting - Issued Business Standard #5 - Proper notice of
information practices is provided. See ORS 746.620, page A-19.

Findings
100% compliance.

Individual Health Underwriting - Issued Business Standard #6 - The policy is delivered
within a reasonable period of time after issuance. See ORS 742.046(1), page A-3.

Findings
100% compliance.

Individual Health Underwriting - Issued Business Standard #7 - The Company does not
unfairly discriminate between individuals of the same class and equal expectation of
life, or between risks of essentially the same degree of hazard, in the availability of
insurance, application of rates or other terms or conditions of the policy. See ORS
746.015(2), page A-17.

Findings
100% compliance.

Individual Health Underwriting - Issued Business Standard #8 - The Company does not
unfairly discriminate in the application of its underwriting standards or rates based
solely on an individual’s physical handicap. See ORS 746.015(2), page A-17.

Findings
100% compliance.

Individual Health Underwriting - Issued Business Standard #9 - The Company does not
unfairly discriminate in the application of its underwriting standards or rates based
solely upon an insured’s age. See ORS 746.015(3), page A-17.

Findings
100% compliance.

Individual Health Underwriting - Issued Business Standard #10 - The Company does
not unfairly discriminate between individuals of the same class in the application of its
underwriting standards or rates based solely on blindness or partial blindness. See
OAR 836-81-030, page A-40.

Findings
100% compliance.

Individual Health Underwriting - Issued Business Standard #11 - The Company does
not use sexual orientation in the underwriting process or to determine insurability. See
OAR 836-50-237, page A-30, OAR 836-50-240(1), (2) & (3), page A-30, and OAR 836-50245(
1), page A-30.

Findings
100% compliance.

Individual Health Underwriting - Issued Business Standard #12 - The Company does
not test for or ask medical questions about HIV infection, including ARC and AIDS
unless testing for or asking medical questions about other health conditions. See OAR
836-50-240(4), page A-30.

Findings
100% compliance.

Individual Health Underwriting - Issued Business Standard #13 - The Company does
not rate or deny coverage based solely on an affirmative response on the application to
a question about past HIV test results. See OAR 836-50-255, page A-32.

Findings
100% compliance.

Individual Health Underwriting - Issued Business Standard #14 - Testing for HIV is
only done with informed consent. See OAR 836-50-250(2), page A-31.

Findings
100% compliance.

Individual Health Underwriting Global Standards

Individual Health Underwriting - Issued Business Global Standard #1 - All statements
and descriptions in applications for insurance policies are deemed to be representations
and not warranties. See ORS 742.013, page A-2.

Findings
100% compliance.

Individual Health Underwriting - Issued Business Global Standard #2 - Disclosure
authorization forms used are written in plain language and contain the information
specified in ORS 746.630. See ORS 746.630, page A-20.

Findings
100% compliance.

Declined

From a total population of 1,417 applications declined during the examination period,
an initial sample of 50 (3.5%) was selected.

Each sample file was tested for compliance with the following standards based on
Oregon Revised Statutes and Oregon Administrative Rules. The complete text of these
laws and regulations may be found in Appendix I which follows the report.

Individual Health Underwriting - Canceled/Declined Business Standard #1 - Records
are adequate and accessible. See ORS 733.170, page A-2.

Findings
100% compliance.

Individual Health Underwriting - Canceled/Declined Business Standard #2 - Proper
notice of information practices is provided. See ORS 746.620, page A-19.

Findings
100% compliance.

Individual Health Underwriting -Canceled/Declined Business Standard #3 - The
Company does not unfairly discriminate between individuals of the same class and
equal expectation of life, or between risks of essentially the same degree of hazard, in
the availability of insurance, application of rates or other terms or conditions of the
policy. See ORS 746.015(1), page A-17.

Findings
100% compliance.

Individual Health Underwriting - Canceled/Declined Business Standard #4 - The
Company does not unfairly discriminate in the application of its underwriting
standards or rates based solely on an individual’s physical handicap. See ORS
746.015(2), page A-17.

Findings
100% compliance.

Individual Health Underwriting - Canceled/Declined Business Standard #5 - The
Company does not unfairly discriminate in the application of its underwriting
standards or rates based solely upon an insured’s age. See ORS 746.015(3), page A-17.

Findings
100% compliance.

Individual Health Underwriting - Canceled/Declined Business Standard #6 - The
Company does not unfairly discriminate between individuals of the same class in the
application of its underwriting standards or rates based solely on blindness or partial
blindness. See OAR 836-81-030, page A-40.

Findings
100% compliance.

Individual Health Underwriting - Canceled/Declined Business Standard #7 - The
Company does not use sexual orientation in the underwriting process or to determine
insurability. See OAR 836-50-237, page A-30, OAR 836-50-240(1), (2) & (3), page A-30,
and OAR 836-50-245(1), page A-30.

Findings
100% compliance.

Individual Health Underwriting - Canceled/Declined Business Standard #8 - The
Company does not rate or deny coverage based solely on an affirmative response on the
application to a question about past HIV test results. See OAR 836-50-255, page A-32.

Findings
100% compliance.

Individual Health Underwriting - Canceled/Declined Business Standard #9 - The
applicant is provided with the specific reason for an adverse underwriting decision or is

notified this information is available upon written request. See ORS 746.650(1)(a) &
(b), page A-20.

Findings
100% compliance.

Individual Health Underwriting - Canceled/Declined Business Standard #10 - Medical
records are released only to the individual to whom the information relates or to a
medical professional who is licensed to treat the condition to which the information
relates who has been designated by that individual. See ORS 746.650(2)(b)(B), page
A-21.

Findings
100% compliance.

Individual Health Underwriting - Canceled/Declined Business Standard #11 - Adverse
underwriting decisions are not based solely upon previous adverse underwriting
decisions or information obtained from an insurance-support organization whose
primary source of information is insurers. See ORS 746.660, page A-21.

Findings
100% compliance.

Individual Health Underwriting - Canceled/Declined Business Standard #12 - The
policy is not canceled unless all policies of the same type and form are not renewed, if
premium is not paid or if a fraudulent or material misrepresentation was made by the
applicant. See ORS 743.472, page A-4.

Findings
100% compliance.

Individual Health Underwriting - Canceled/Declined Business Standard #13 - 30 days
prior to cancellation a notice is mailed to the insured which states the reason for and
the effective date of the cancellation. See ORS 743.471, page A-4.

Findings
This standard was waived since the sample was limited to examples of new
applications that the Company declined to issue. According to the contract, coverage
may be terminated only upon 31 days written notice for reasons specified in the
contract, except for non-payment premium.

Forms

Policy form numbers were recorded from the underwriting files. Oregon Insurance
Division approval dates for the forms used were compared with policy issue dates. A
total of 50 files were reviewed.

Items were tested for compliance with the following standard based on Oregon Revised
Statutes and Oregon Administrative Rules. The complete text of these laws and
regulations may be found in Appendix I which follows the report.

Forms Standard #1 - Policy forms are filed with and approval obtained from the Oregon
Insurance Division prior to use in this state. See ORS 742.003, page A-2.

Findings
100% compliance.

Rates

Actual premium rate information was not included in the underwriting files presented
for review. Rate histories were requested for 5 units (10%) selected by numerical
interval sampling from the initial sample of new business issued. The Company
provided screen print copies of charges billed and paid for each of the 5 units. All were
found to agree with the rate schedules shown on individual plan face sheets.

SEHI

The Company actively markets two SEHI contracts. Small employers can choose
between the large group contract amended with the SEHI provisions or the Basic
Health Plan (BHP). Until recent underwriting changes were made, the BHP was the
only plan available to groups of less than 10.

Internal processing of small group plans follows the same steps as large group.

Findings

The Company provided a population list of 13,577 active SEHI policies. From the list, a
random sample of 100 (.74%) was drawn.

The first 10 policies were reviewed and it was determined the population list was not
valid. The list contained an entry for every contract year of a policy and subgroups
within a policy resulting in an inflated population. The list, also, was not limited to
groups written within the examination period. The following conclusions were
ascertained as a result of the review, subsequent interviews and memorandums from
the Company.

1. The SEHI health reforms (resulting from the passage of Senate Bill 1076) were
implemented by the Insurance Division as of March 1, 1993 for new business and April
1, 1993 for existing business. The Company did not realize the requirement to identify
the existing business meeting SEHI criteria and take the appropriate actions. The
result of this oversight is that the Company is unable to properly identify its SEHI
business. The Company’s existing plan and rating methodology appear to have met
SEHI requirement so the impact to existing customers was at most minimal.
The Company remains in technical noncompliance and should take steps to identify its
SEHI plans.

2. The Company currently uses a census form at the time a new policy is issued to
determine if the employer qualifies for the small employer health plan. The census
form in use does not define a small employer. Therefore, the examiner cannot use the
census to confirm status as a policy meeting SEHI criteria. Additionally, the Company
has not verified annually, the number of eligible employee in a manner that is
documented and verifiable.
The Company does not identify the SEHI accounts in its computer system. This fact,
compounded by the 2 findings noted above, places the Company in the position of being
unable to provide a valid SEHI population to be tested for compliance against the
standards in force.

The Company is, therefore, deemed in noncompliance with all of the standards listed
below until a valid population can be determined and the standards applied to a
random sample from this population.

SEHI Standard #1 - The Company determines the number of employees, as defined by
ORS 743.730(9), of a small employer on an annual basis. See ORS 743.733, page A-11.

SEHI Standard #2 - The Company issues only policy forms which have been filed with
and approved by the Oregon Insurance Division. See ORS 743.734, page A-11 and ORS
742.003, page A-2.

SEHI Standard #3 - If individual policies are issued, the Company has verified the
premium, or a portion of it, is paid by the employer. See ORS 743.734, page A-11 and
Oregon Insurance Division Bulletin 94-5, page A-40.

SEHI Standard #4 - The Company accepts or rejects applications within 60 days for
option up plans or within 30 days for basic plans. See OAR 836-53-050(1) & (2), page
A-37.

SEHI Standard #5 - The Company correctly uses underwriting guidelines for employees
working or residing out of its approved service area. See ORS 743.736(8)(B), page A-13.

SEHI Standard #6 - The Company complies with filed participation and contribution
requirements by obtaining and maintaining signed and dated opt out waivers for those
employees not covered by the SEHI plan. See ORS 743.737(5), page A-15.

SEHI Standard #7 - The Company offers coverage to all eligible employees who work
between 17.5 and 40 hours per week and adheres to its underwriting criteria for
eligibility on a consistent basis. See ORS 743.737(11), page A-16, OAR 836-53040(
2)(a),(b)&(c), page A-36, and ORS 743.737(5), page A-15.

SEHI Standard #8 -The Company applies pre-existing condition provisions
appropriately for all enrollees. See ORS 743.737(1),(2)&(3), page A-14.

SEHI Standard #9 - The Company does not increase rates more than once in a 12month
period. See ORS 743.737(6)(c), page A-15.

SEHI Standard #10 - The Company’s premium rates for new business are within 33% of
the approved geographic average rate. See ORS 743.737(6)(b), page A-15.

SEHI Standard #11 - The Company’s rate adjustments do not exceed 15% annually,
except as provided by ORS 743.737(6)(c)(A)&(B). See ORS 743.737(6)(c)(A)&(B), page
A-15.

SEHI Standard #12 - The Company does not assess rates for claim experience, health
status and duration of coverage to individual employees or dependents. See OAR 83653-
020(1), page A-34.

SEHI Standard #13 - The Company adjusts rates uniformly to the premiums charged
for all employees and dependents of a small employer. See OAR 836-53-020(1), page
A-34.

SEHI Standard #14 - The Company’s plans are renewable with respect to all eligible
employees or dependents at the option of the policyholder except for the reasons
provided by ORS 743.737(4)(a) through (g). See ORS 743.737(4)(a) through (g), page
A-14.

SEHI Standard #15 - The Company notifies the group policyholder, Bureau of Labor
and Industries and the Department of Consumer and Business Services when policies
terminate and are not replaced by the group policyholder. See ORS 743.560, page A-7.

SEHI Standard #16 - When the Company declines to issue a health benefit plan to a
small employer, other than the basic health plan, the Company notifies the employer
and the agent in writing. The Company’s notice contains an offer of the basic health
plan to the employer and meets the other requirements set forth in OAR 836-53030(
3)(a) through (d). See OAR 836-53-030 (3) (a), page A-35.

In accordance with ORS 732.245(1), every domestic insurer shall have and maintain its
principal place of business and home office in this state, and shall keep therein
accurate and complete records of its assets, transactions, and affairs in accordance with
the provisions of the Insurance Code. In accordance with ORS 733.170, an insurer shall
keep its books, records, accounts and transaction source data in such manner that the
director may readily verify its statements of financial condition and ascertain whether
the insurer is unimpaired, has given proper treatment to policyholders and has
complied with the Insurance Code.

The Company’s records pertaining to compliance with small employer reform are
inadequate to ascertain policyholder treatment or compliance with the Insurance Code.

I recommend the Company establish policies and procedures to identify its SEHI
products in accordance with ORS 732.245 (1) and ORS 733.170. The Company will be
held in noncompliance for SEHI standards 1-16 until a valid population can be
produced.

The SEHI terminated files examination and a review of BHP were also suspended
pending a valid population.

SEHI Global Standards

SEHI Global Standard #1 - The Company files its geographic average rate for all health
plans issued to small employers for a rating period with the Director on or before
January 1 of each year. See ORS 743.737(6)(a), page A-15.

Findings
100% compliance

SEHI Global Standard #2 - The Company files its annual actuarial certification with
the Director on or before January 1. See ORS 743.737(8)(b), page A-16.

Findings
Noncompliance. The Company did not file its actuarial certificate for each year under
examination. The Company did file its actuarial certificate for 1995 and 1996. As the
Company is now aware of this requirement and has complied in recent years, a
recommendation is not warranted.

SEHI Global Standard #3 - The Company has on record a complete and detailed
description of its rating and renewal underwriting practices. See ORS 743.737(8)(a),
page A-16.

Findings
Noncompliance. The Company produces and distributes several pieces of information
pertaining to its rating and renewal. However, until this examination the Company did
not maintain a complete description of its rating and renewal underwriting as
prescribed by ORS 743.737(8)(a).

I recommend the Company maintain a complete and detailed description of its rating
and renewal underwriting practices in accordance with ORS 743.737(8)(a).

SEHI Global Standard #4 - The Company’s compensation methodology for agents is the
same for the basic plan as for other plans issued to small employers. See OAR 836-53030(
2), page A-35.

Findings
100% compliance.

SEHI Global Standard #5 - The Company’s solicitation and sales materials provide a
reasonable disclosure to small employers and conform to the requirements of the
statutes. See ORS 743.737(7)(a) through (d), page A-15.

Findings
The Company filed and received approval for different items of information which
comply with this standard. Through a miscommunication, the Insurance Division
assumed the Company was consolidating the information onto a single form when, in
fact, the Company intended to maintain the information on various forms. The
Company has indicated its willingness to work with the Insurance Division towards the
consolidation of the disclosure information onto one form; therefore, no
recommendation is warranted.

SEHI Global Standard #6 - The Company has filed for approval all health plans,
individual and/or group, marketed to small employers. See ORS 743.734(1) page A-11
and ORS 742.003, page A-2.

Findings
100% compliance.

SEHI Global Standard #7 - If the Company markets and issues individual health plans
to small employers, it has a method for confirming compliance with the reform. See
ORS 743.734(1), page A-11 and Oregon Insurance Division Bulletin 94-5, page A-40.

Findings
This Company does not market or issue individual health plans to small employers.


SEHI Global Standard #8 - The Company offers small health employers an approved
basic health plan for employees working 17.5 hours per week. See ORS 743.737(11),
page A-16.

Findings
100% compliance.

SEHI Global Standard #9 - The Company uses a uniform health statement for the
purpose of a health plan rate quotation or applying for coverage. See OAR 836-53-080,
page A-38.

Findings
100% compliance.

SEHI Global Standard #10 - At the time of enrollment the Company determines
previous group or individual health benefit plans for the purpose of applying a
preexisting condition provision. See ORS 743.737(2), page A-14.

Findings
Not applicable. The Company’s contracts do not contain preexisting condition
provisions.

SEHI Global Standard #11- If the Company offers group insurance to an association or
trust, it files with and receives approval of these entities from the Insurance Division.
See ORS 743.524, page A-6, and ORS 743.526 page A-6.

Findings
Please refer to the Associations section which follows SEHI.


SEHI Forms

A traditional examination of forms was not performed due to the problems isolating a
valid population.

The examiner did review the forms on the 10 files previously mentioned to determine if
the forms in use had been filed and approved. The following conclusions were drawn:

1. The Company has filed the contract forms and amendments. However, one
facesheet, H-1000 does not appear to have been filed with the appropriate SEHI
language. The form was filed for use with large group but was not filed as part of the
SEHI program.
2. The Company filed the SEHI Basic Health Plan, H-712, indicating on the
certification form that many of the requirements could be found on the accompanying
facesheet, H-1011. However, the contribution and participation requirements were not
included in the facesheet as stated on the certification. The same facesheet was filed
with language showing the eligibility requirement changed to 17.5 hours. The

Company intended that paragraph to indicate the eligibility hours selected by the
employer and should have been filed with a variable.

Prior to leaving the examination site, the Company filed the corrections noted above;
therefore, a recommendation is not warranted.

Associations

When a rate quote is requested from an association, the Company reviews the
association’s mission statement, by-laws, and constitution. An application to provide
insurance is then filed with the Oregon Insurance Division. The group is written after
approval has been granted.

Premiums rates for associations are calculated in the same manner as any other groups
of comparable size. All employers within the association pay the same premium rate.

Findings

The Company was asked to provide a list of all the associations that were in force
during the examination period. Originally the Company submitted a partial list. The
final list was composed of 18 group policies identified as associations. The Company
completed an informational form on each association.

The items were tested for compliance with the following standards based on Oregon
Revised Statutes or Oregon Administrative Rules was researched. The text of the laws
and administrative rules may be found in Appendix 1 following the report.

Associations - Standard #1 -If the Company offers group insurance to an association, it
files with and receives approval of these entities from the Insurance Division. See ORS
743.524, page A-6 and ORS 743.526, page A-6.

Findings
93% compliance. From the population list, 3 groups were eliminated. One had
previously been approved by the Oregon Insurance Division as a large group, the
second was deemed to be a trust under the Internal Revenue Code Section 501 C(5),
and the third appears to be a Multiple Employer Welfare Arrangement or MEWA. (See
additional findings and procedures). Of the remaining 15 groups, 1 was not filed for
approval as associations prior to issue.

I recommend the Company file with and obtain approval from the Oregon Insurance
Division for all associations to which insurance policies are offered in accordance with
the provisions of ORS 743.524 and ORS 743.526.

Associations - Standard #2 - If the association is administered by an agent and it
appears the agent would meet the definition of a Third Party Administrator (TPA), the
agent holds a TPA license. See ORS 744.702, page A-16.

Findings
93% compliance. The Company identified 2 agents who appear to be acting as TPAs for
associations. One agency is licensed as a TPA; however, the agent is not at this time
licensed as a TPA.

I recommend all agents acting as third party administrators be properly licensed with
the Oregon Insurance Division as TPAs in accordance with the provisions of ORS

744.702.
Additional Findings and Procedures

The Company identified one group on the association list as a MEWA. The Company
supplied the following definition of a MEWA:

A. The term “multiple employer welfare arrangement” (MEWA) means an employee
welfare benefit plan, or any other arrangement (other than an employee welfare
benefit plan), which is established or maintained for the purpose of offering or
providing any benefit described in paragraph (1) to the employees of two or more
employers (including one or more self-employed individuals), or to their beneficiaries,
except that such term does not include any such plan or other arrangement which is
established or maintained.
under or pursuant to one or more agreements which the Secretary of Labor
finds to be collective bargaining agreements, or

by a rural electric cooperative

by a rural telephone cooperative association.

B. For the purpose of this paragraph:
two or more trades or business, whether or not incorporated shall be deemed a
single employer if such trades or businesses are within the same control group,

the term “control group” means a group of trades or businesses under common
control.

The Company uses the following process to determine if a group qualifies as a MEWA:

1. The sales representative, upon prospecting the group, gathers the necessary
information in writing. The necessary information may include but is not
limited to the name and identifications of all the employers and any information
necessary to perform a common control test.
2. Legal counsel reviews the information and makes the determination as to
whether the group meets the definition of a fully insured MEWA. Legal counsel
also checks for filing with the Department of Labor.
3. Upon approval of the group as a MEWA by legal counsel, the group is written
for coverage.
CLAIMS HANDLING PRACTICES

Claims are received by the claims and referrals department mail room. Here they are

date stamped, sorted according to assigned processing area, microfilmed and batched in

date received order. The batches are then distributed to the claims processing staff.

The claims are entered in the computer system by the claims processing staff. They are
processed by batch in date received order. Claims may be paid, pended or denied.

A computer check processing cycle is run on a weekly basis. A member statement is
created for each claim processed during the interval between check processing cycles.

If the claim was paid, an explanation of benefits is included on the member statement
and a remittance statement accompanies each check.

If pended or denied, the member statement reflects the reason the case is pended or
contains the reason for the denial.

Separate letters detailing exactly what is required of members are sent in addition to
the member statements for cases that are pending for specific information requested
from members.

The checks produced by the computer are returned to accounts payable for
reconciliation prior to being mailed. Once reconciled, the checks are delivered to the
claims and referrals to be mailed to the appropriate party.

The proof of loss is destroyed after a claim has been paid or denied. The microfilm is
the only record of the original document retained by the Company.

Findings
Claims Paid

From a total population of 427,276 paid claims, a sample of 100 (.02%) was randomly
selected.

The items were tested for compliance with the following standards based upon Oregon
Revised Statutes or Oregon Administrative Rules. The text of the laws may be found in
Appendix I following the report.

Claims Paid Standard #1 - The Company acknowledged or paid the claim within 20
working days of notification of the claim. See ORS 746.230(1)(b), page A-18 and OAR
836-80-225(1) & (4), page A-39.

Findings
90% compliance. Ten files (10%) failed this standard. The acknowledgement notices
the Company mails to claimants are generated through the check cycle process. The
Company indicated it experienced a check cycle scheduling problem during the
examination period which was corrected in 1996. Five of the files which did not meet
this standard failed because the acknowledgement notices were delayed due to the
check scheduling problem. The Company admitted the remaining 5 files failed this
standard without providing further explanations for noncompliance.

Days to Acknowledge or Pay Number Percentage
0-20 90 90%
21-30 10 10
31-45 0 0
Over 45 0 0
Total 100 100%

I recommend the Company acknowledge or pay claims within 20 working days of
notification of the claim in accordance with ORS 746.230(1)(b) and OAR 836-80-225(1)
and (4).

Claims Paid Standard #2 - The Company completed its claim investigation within 45
working days unless the investigation could not reasonably be completed within that
period of time. See ORS 746.230(1)(c) & (k), page A-18 and OAR 836-80-230, page A-39.

Findings
100% compliance.

Claims Paid Standard #3 - The Company notified the first party claimants of any delay
in the investigation of the claim within 20 working days from receipt of the proof of loss
and every 45 days after the first notice. All notices must be in writing and include a
reason for the delay. See OAR 836-80-235(3), page A-40.

Findings
90% compliance. Ten files (10%) failed this standard. The delay notices the Company
mails to claimants are generated through the check cycle process. The Company
indicated it experienced a check cycle scheduling problem during the examination
period which was corrected in 1996. Five of the files which did not meet this standard
failed because the notices were delayed due to the check scheduling problem. The
Company admitted the remaining 5 files failed this standard without providing further
explanations for noncompliance.

I recommend the Company notify first party claimants of any delay in the investigation
of claims within 20 working days from receipt of the proofs of loss and every 45 days
after the first notice in accordance with OAR 836-80-235(3).

Claims Paid Standard #4 - The Company responded to additional correspondence from
a claimant within 20 working days. See ORS 746.230(1)(b), page A-18 and OAR 836-80225(
3), page A-39.

Findings
99% compliance. One file (1%) failed this standard. The Company received a claims
appeal June 28, 1995 and did not acknowledge receipt of this correspondence until
August 4, 1995; 26 working days later.

A failure rate of 1% does not demonstrate a pattern and no recommendation is
warranted.

Claims Paid Standard #5 - Records are accessible and readily verifiable. Claims files
are adequately documented. See ORS 733.170, page A-2 and OAR 836-80-215, page
A-38.

Findings
97% compliance. Three files (3%) failed this standard. The Company did not document
the date a coordination of benefits form was received on one of the files and did not
retain documentation of a member’s response to coordination of benefits questions on
another file. The remaining file failed this standard because the Company did not
document action taken on a claim on a specific date.

A failure rate of 3% does not appear to represent a pattern. No recommendation is
warranted.

Claims Paid Standard #6 - The Company did not misrepresent or omit facts or policy
provisions in settling claims and fully disclosed all pertinent benefits, coverages and

provisions of the policy. See ORS 746.230(1)(a), page A-18 and OAR 836-80-220, page
A-38.

Findings
100% compliance.

Claims Paid Standard #7 - Coordination of benefits savings are used to pay allowable
expenses. See OAR 836-20-735(3), page A-29.

Findings
100% compliance.

Claims Paid Standard #8 - Claim payments are not delayed by more than 14 days due
to application of a coordination of benefits provision. See OAR 836-20-740(3), page
A-30.

Findings
The sample reviewed did not contain evidence of compliance or noncompliance to this
standard. The Company was asked what procedures were in place to comply with this
law.

The Company acknowledged it does not currently have procedures in place to ensure
compliance with OAR 836-20-740(3). This Oregon Administrative Rule prohibits
insurers from delaying payment of claims by more than 14 days due to application of
the coordination of benefits provision. If, at the end of that time, the insurer has
insufficient information to make it a secondary Plan, it must make payment as the
primary Plan. The Company has indicated it will take corrective action by July 1, 1997.

I recommend the Company establish procedures to ensure compliance with OAR 83620-
740(3). Claims may not be delayed by more than 14 days by application of the
coordination of benefits provision.

Claims Paid Standard #9 - Claims are paid in accordance with the contract and the
claims handling procedures of the Company. See ORS 731.300, page A-1 and ORS
733.170, page A-2.

Findings
100% compliance.

Claims Denied

From a total population of 46,681 denied claims, a sample of 100 (.21%) was randomly
selected. Reasons for the denials are shown below:

Reason Number Percentage
Could have used a Kaiser facility 10 10%
Coverage not in force 18 18
Contract limit already paid 2 2
Information not submitted 17 17
Lack of medical necessity for ambulance transport 1 1
Not a covered benefit 2 2
Not authorized by Kaiser 40 40
Not covered under emergency benefit 4 4
Paid claim 3 3
Workers’ compensation claim 3 3
Total 100 100%

The items were tested for compliance with the following standards based upon Oregon
Revised Statutes or Oregon Administrative Rules. The text of the laws may be found in
Appendix I following the report.

Claims Denied Standard #1 - The Company acknowledged or paid claims within 20
working days of notification of the claim. See ORS 746.230(1)(b), page A-18 and OAR
836-80-225(1) & (4), page A-39.

Findings
96% compliance. Four files (4%) failed this standard.


Days to Acknowledge or Deny Number Percentage
0-20 96 96%
21-30 4 4
31-45 0 0
Over 45 0 0
Total 100 100%

A failure rate of 4% does not demonstrate a pattern and no recommendation is
warranted.

Claims Denied Standard #2 - The Company completed its claims investigations within
45 working days unless the investigations could not reasonably be completed. See ORS
746.230(1)(c) & (k), page A-18 and OAR 836-80-230, page A-39.

Findings
100% compliance.

Claims Denied Standard #3 - The Company notified 1st party claimants of any delay in
the investigation of a claim within 20 working days from receipt of the proof of loss and
every 45 days after the first notice. All notices must be in writing and include a reason
for the delay. See OAR 836-80-235(3), page A-40.

Findings
96% compliance. Four files (4%) failed this standard.

A failure rate of 4% does not demonstrate a pattern and no recommendation is
warranted.

Claims Denied Standard #4 - The Company responds to additional correspondence from
a claimant within 20 working days. See ORS 746.230(1)(b), page A-18 and OAR 836-80225(
3), page A-39.

Findings
100% compliance.

Claims Denied Standard #5 - Records are accessible and readily verifiable. Claims files
are adequately documented. See ORS 733.170, page A-2 and OAR 836-80-215, page
A-38.

Findings
100% compliance.

Claims Denied Standard #6 - The Company does not misrepresent or omit facts or
policy provisions in settling claims and fully discloses all pertinent benefits, coverages
and provisions of the policy. See ORS 746.230(1)(a), page A-18 and OAR 836-80-220,
page A-38.

Findings
100% compliance.

Claims Denied Standard #7 - The Company does not refuse to pay claims without
conducting a reasonable investigation. See ORS 746.230(1)(d), page A-18.

Findings
100% compliance.

Claims Denied Standard #8 - Claim denials include a proper explanation of the basis
relied on in the insurance policy and are made in writing. See ORS 746.230(1)(m), page
A-18 and OAR 836-80-235(1) & (2), page A-39.

Findings
42% compliance. 58 files (58%) failed this standard. The Company has acknowledged
the brief sentences used in its denial form letters do not provide a proper explanation of
the basis relied on in the insurance policy. The Company has indicated it will take
action to correct this situation by July 1, 1997.

I recommend the Company’s claim denials include a proper written explanation of the
basis relied on in the insurance policy in accordance with ORS 746.230(1)(m) and OAR
836-80-235(1) and (2).

Claims Denied Standard #9 - The Company does not deny claims on the grounds that
responsibility for payment should be assumed by others, except as provided by the
policy. See OAR 836-80-235(4), page A-40.

Findings
100% compliance.

Claims Denied Standard #10 - Claims are paid in accordance with the contract and the
claims handling procedures of the Company. See ORS 731.300, page A-1 and ORS
733.170, page A-2.

Findings
100% compliance.

Additional Procedures And Findings
Behavioral Health

The Company adopted the State of Oregon model criteria for mental health care in May
of 1992. This model was reformatted into a document titled “Kaiser Permanente
Criteria for Mental Health Care” and was reaffirmed to Company personnel in
November, 1994.

The criteria used for chemical dependency treatment are the latest annual revision
based on ASAM (American Society of Addiction Medicine) guidelines, which have been
in use since about 1989.

Members may access behavioral health care through their primary care physicians.
When such conditions are suspected or diagnosed by the primary care physician, that
medical provider sends a referral to the mental health department, which may arrange
for care either within or outside of the plan.

A member who wants a self-referral may call the mental health appointment telephone
number in the Company’s medical directory. The member will talk to a masters’ level
licensed counselor for triage. Through a 20-30 minute intensive telephone interview
with the caller, the counselor establishes both the urgency level of the patient and a
provisional diagnosis. The counselor assists the member by scheduling an initial
appointment, when appropriate. The Company’s goals are to provide emergency care
within 2 hours, urgent care within 36 hours, and regular care within two weeks. The
model criteria are used to determine whether residential or inpatient care is warranted.

The GAF (Global Assessment Functioning) score and the amount of urgency per the
patient are essential factors in determining the treatment plan.

The Company does not have special handling procedures for court ordered treatment.
If such treatment is a covered benefit and the patient wishes to receive it, treatment is
provided as it would be without a court order.

One of the denied claims reviewed included a letter to the member indicating any
future treatment the member might receive for a mental health condition is not covered
under the member’s medical plan with the Company. From the information reviewed,
it appeared future prescription drugs and ongoing medical treatment (exclusive of
mental and nervous benefits) for this condition were denied with this letter. The
Company has indicated the intent of this letter was not to deny future “medical” care
for treatment of the specified condition. The Company has written a letter to this
member to clarify the intent of the prior correspondence and apologizing for any
misunderstanding. This letter was mailed to the member during the examination.

A sample dedicated solely for behavioral health claims was not deemed necessary in
addition to the behavioral health claims reviewed in the complaints and claims phases
of the examination.

Emergency Room (ER) Claims

The Company responded to a series of questions regarding its standard operating
procedures for processing ER claims and provided supporting documentation for the
examiner’s review.

All ER claims are reviewed individually and all proposed ER claim denials are reviewed
by the Company’s medical reviewer. ER claims considered for denial must be

accompanied by their respective medical records. The Company has confirmed prudent
lay person or “reasonable man” language is applied when adjudicating ER claims. The
Company does not maintain a list of diagnosis codes which are always considered
emergencies and no diagnosis codes are always denied.

A sample dedicated solely for ER claims was not deemed necessary in addition to the
ER claims reviewed in the complaints and claims phases of the examination.

ADMINISTRATION/PROVIDER RELATIONS
Information contained in this summary is presented for disclosure purposes only and
was not evaluated for compliance, except where noted.

The Company responded to a series of questions regarding its provider administration
procedures and supplied supporting documentation for the examiner’s review.

Provider Administration

The Company has defined the service area and established a provider directory system
adequate to meet the health services needs of its enrolled population. The Company
determines the number of physicians it needs based on the number of enrolled
members, new technology and the demographics of its customer base. Each year the
Company forecasts its membership growth and adds physicians in anticipation of that
growth. The Company also contracts with community providers for additional services.

The Company continually monitors and evaluates the ratio of primary care to specialty
care. Some of the factors considered are: meeting the needs of customers for reasonable
access and a wide selection of physicians; current referral patterns among physicians;
introduction of new technology (which can increase or decrease the need for referrals to
specialty care).

Physicians are assigned to specific medical offices based on meeting the needs of
members. The Company takes into account such factors as: convenient mix of medical
specialties, member satisfaction, changes in local area population, and member travel
time. New medical offices are built on a similar set of criteria.

The current ratio of primary care physician to enrollees is 1/1,834.

Access for members is a Company priority. The Company has established access
standards based on direct feedback from its members. The standards are:

non-urgent care - primary physician - standard: 100% seen within 2 weeks
non-urgent care - specialist - standard: 80% seen within 2 weeks
health maintenance - standard: 75% within 2 weeks; 100% within 4 weeks
urgent care - standard: 100% seen within 24 hours
emergency treatment - standard: 100% immediate

To keep managers and providers apprised of actual performance in meeting access
standards, CDA (Customer Directed Access) and AIM (Access Improvement for
Members) reports are published.

The following is verified/reviewed on a local level during the physician
selection/credentialing process.

Required Preferred
Graduation from an accredited U.S. College of
Medicine or Osteopathy
X
Completion of accredited clinical postgraduate
training program(s) (e.g., internship,
residency, fellowship)
X
Valid state license (for state of practice) X
Board certification/eligibility appropriate to
practice area
X

Required Preferred
Federal and State DEA (Drug Enforcement
Agency) controlled substance registration &
unrestricted prescribing privileges
X
Active admitting privileges at a network
hospital
X
Malpractice coverage with a minimum of
$1,000,000/$3,000,000
X
Detailed malpractice history* X
Detailed history of disciplinary action or
litigation
X
Sanctions through federation of state medical
boards
X
Membership in professional organization X
Review of medical records X
Site visits prior to contracting X
Physician interviews X
Continuing medical education (CME)
requirements
X
Minimum number of hours open X
24-hour coverage for emergencies* X
Detailed history of general health** X
Detailed history of chemical dependency** X
Detailed history of mental health** X
Detailed history of conviction for fraud or
felony
X

*Required of all non-Kaiser Permanente physicians
**These, and all physician selection/credentialing are in compliance with ADA
(Americans with Disabilities Act)

The following is verified by the Company with primary sources:

State licensure Yes
Hospital privileges Yes
Board certification Yes
Current, adequate, malpractice insurance Yes
JCAHO (Joint Commission on Accreditation
of Hospital Organizations) accreditation Yes

The Company uses a “center of excellence” approach when contracting for tertiary care
services. Service volume, outcome measures, and regional or national reputation are
some of the factors used to select providers of tertiary care services. The Company also
has standards that are used to evaluate other types of providers.

The Company has written agreements with Northwest Permanente (NWP) and Kaiser
Foundation Hospitals (KFH). NWP is responsible for providing all professional services
and KFH is responsible for providing all other services. NWP contracts with
community physicians to provide services that are not available for NWP physician
partners and employees. KFH contracts with non-physician community providers, such
as hospitals, nursing homes, medical equipment suppliers, and ambulance companies,
to provide services not available from KFH employees working in KFH facilities.

NWP and KFH agreements with community providers include language requiring
providers to accept in consideration for all covered service, payment in full from the
Company, based upon charges set forth in the contract.

The Company publishes and distributes a directory to new members on enrollment and
annually thereafter. The directory lists participating hospitals, physicians and other
health care providers.

The Company does not have generic sanction language in its community provider
agreements. An agreement may contain penalty provisions for failure to meet specific
requirements related to the terms of that agreement, but generally, sanctions are not
used as a method of controlling community provider participation.

The Company established the community medical services department in 1986 in order
to provide a focus for decision-making and the management of community services,

including: conducting make-buy studies, coordinating the development and
implementation of a community service management plan, and identifying and helping
to resolve key community service issues. This department makes all arrangements for
the provision of community service. It provides information, consulting, and analytical
support to Kaiser Permanente program managers on community service issues.

Several types of provider manuals have been developed and distributed to community
providers. Periodic updates to those manuals are distributed as needed.

Provider Administration - Credentialing

Credentialing for the northwest division is the responsibility of the Company. The
Company shares responsibility with Northwest Permanente. Company oversight is
assured by Company participation on the regional credentials review committee. The
regional medical staff credentials coordinator is an employee of the Company. The
Northwest Permanente Board of Directors and the KFH executive committee and
division president act on recommendation of the regional credentials review committee
for appointment and reappointment.

All physicians and other licensed health care practitioners employed by or under
contract with the Company are credentialed. Kaiser Foundation Health Plan (KFHP)
Northwest Division initial credentialing, privileging, and recredentialing/reappraisal
standards and processes are consistent throughout the division. The credentialing
policies and procedures are in compliance with JCAHO standards, National Committee
for Quality Assurance standards, Kaiser Foundation Hospital bylaws, and State and
Federal rules and regulations.

The same credentialing process is used for both the HMO and hospitals and it is
managed centrally under the oversight of the regional credentials review committee.

The Company may delegate to a healthcare entity which passes a rigorous audit.

If credentialing is delegated to a contract or intermediary organization, the Company
reviews and approves the intermediary’s program. The Company verifies all providers
affiliated with the intermediary organization have been credentialed and are acceptable
to the intermediary organization.

The credentialing committee has developed and formally adopted a written
credentialing plan that contains comprehensive policies and procedures. In addition,
the committee has an annual work plan and measures of performance.

The Company obtains and retains on file a complete, signed, and dated credentialing
application from each provider making application for employment applying to contract
with the Company. The Company is working with many other healthcare entities in
the community to develop a single application for everyone in the State of Oregon.

The Company verifies credentials through appropriate primary and secondary sources.
The following is verified/reviewed on a local level during the physician
selection/credentialing process.

Required Preferred Not Reviewed
Graduation from an accredited U.S.
college of medicine
X
Valid state license (for state of
practice)
X
Board certification/eligibility
appropriate to practice area
X
Federal and State DEA controlled
substance registration & unrestricted
prescribing privileges
X
Active admitting privileges at a
network hospital
X
Malpractice coverage with a
minimum of $1,000,000/$3,000,000
X

Required Preferred Not Reviewed
Detailed malpractice history* X
Detailed history of disciplinary action
or litigation
X
Sanctions through federation of state
medical boards
X
Membership in professional
organization
X
Review of medical records X
Site visits prior to contracting X
Physician interviews X
Continuing medical education (CME)
requirements
X
Minimum number of hours open* X
24-hour coverage for emergencies* X
Detailed history of general health** X
Detailed history of chemical
dependency**
X
Detailed history of mental health** X
Detailed history of conviction for
fraud or felony
X

*Required of all non-Kaiser Permanente physicians
**These, and all physician selection/credentialing, are in compliance with ADA

The following is verified by Kaiser Permanente with primary sources:

State licensure Yes
Hospital privileges Yes
Board certification Yes
Current, adequate, malpractice insurance Yes
JCAHO accreditation Yes

The Company does query the National Practitioner Data Bank on each new applicant
and at least biannually on all affiliated physicians, dentists, and other health care
practitioners.

Site visits to the office of each primary care physician applying to contract with the
Company are required as part of the credentialing process.

The Company recredentials all participating physicians and other health care providers
at least every two years.

The Company has written policies and procedures for the termination of participating
providers including an appropriate appeals mechanism.

The agreements listed below were reviewed. It appears these contracts do comply with
the provisions of ORS 750.095(2) which state the contracts shall provide that if the
health care service contractor fails to pay for covered health care services as set forth in
the subscriber’s evidence of coverage or contract, the subscriber is not liable to the
provider for any amounts owed by the health care service contractor.

Dental Service Agreement between Kaiser Foundation Health Plan of the
Northwest and Permanente Dental Associates effective January 1, 1995.

Hospital Service Agreement between Kaiser Foundation Health Plan of the
Northwest and Kaiser Foundation Hospitals as amended January 1, 1989.

Medical Service Agreement between Kaiser Foundation Health Plan of Oregon
and Northwest Permanente, P.C./Physicians & Surgeons effective January 1,
1979. Kaiser Foundation Health Plan of Oregon is the former name of Kaiser
Foundation Health Plan of the Northwest.

Reciprocal Services Agreement between Kaiser Foundation Health Plan of the
Northwest, Group Health Cooperative of Puget Sound and Group Health
Northwest effective January 1, 1995.

POLICYHOLDER TREATMENT


Information contained in this summary is presented for disclosure purposes only and
was not evaluated for compliance.

The Company does have quality assurance and utilization management procedures in
place. The quality resource program is a combined quality assurance and utilization
management program.

The National Committee for Quality Assurance (NCQA) granted full accreditation to
the Company effective June 22, 1995. This accreditation determination will be in effect
until June 22, 1998.

The Company responded to a series of questions regarding its quality assurance and
utilization management procedures and provided supporting documentation for the
examiner’s review.

Quality Assurance (QA)

The Board of Directors established the Board quality committee November 10, 1983, as
a subcommittee of the Board to oversee the quality of care on their behalf. This
committee now meets at least quarterly and carries out its oversight responsibility by
conducting a review of the quality program of the Company by reviewing quarterly
health plan reports, and by reviewing and approving quality resource program
descriptions, annual quality resource work plans, and annual quality resource program
evaluations. The Board quality committee holds the Company president and Company
medical director accountable for the performance of the Company’s quality resource
program. Minutes of the Board quality committee meetings held during the
examination period were reviewed. Areas of underutilization as well as overutilization
were noted in these documents. The examiner did not identify concerns or trends that
warranted additional investigation at this time.

The Company publishes a performance measure catalogue to communicate company-
wide performance measures and customer specific performance standards. The
performance measure catalogue contains satisfaction measures and HEDIS (Health
Plan Data and Information Set) measures, as well as clinical quality measures. The
catalogue is maintained on a database which is linked to and available to those who
conduct performance measurement, develop guidelines, and meet with customers. The
performance measure catalogue tracks data definitions, calculation formulas,
responsibility and accountability, frequency of reporting, targets and current
performance.

Performance measures are the essential element of the Company’s quality resource
program and link together quality, utilization management, contracted care, and
credentialing. Performance measures form the basis for the conversations, plans, and
actions that improve care and service. Performance measures document outcomes and
highlight areas for improvement. Electronic databases and reporting mean that every
aspect of the integrated quality resource management program can receive up-to-date
information simultaneously and take action when issues are identified.

Measurement is systematic, relates to scope and aspects of care and service, and is
collected at the appropriate frequency. Data collection is supported by electronic
databases, focused record reviews and surveys. The Company measures performance
company-wide in order to align quality resource activities and identify opportunities for
improvement.

The Company collects data related to the priority issues chosen for quality resource
improvement and as part of ongoing assessment. The quality resource program
measures processes that affect a large percentage of patients, processes which place
patients at serious risk if not performed well or performed when not indicated or not
performed when indicated, and have been or are likely to be problem prone. Rate-based
indicators track performance against targets and/or benchmarks and monitor
compliance with standards. Sentinel indicators identify critical events requiring
investigation.

The Company’s efforts to measure and improve the effectiveness of its health care
delivery system focus on data collection, quality and utilization review, development of
clinical practice guidelines, clinical research, and continuous quality improvement.

Besides specific performance standards, the Company has many quality measures it is
continuously monitoring, such as those included in the HEDIS report. These measures
tell the Company how it is doing in meeting specified targets in identified areas.

In addition to assessing internal performance functions over time, the Company
benchmarks with other Kaiser Permanente divisions and other organizations when
relevant reference databases exist.

The Company employs a variety of QA activities designed to assess and monitor the
quality of care and service in all treatment settings for all types of covered medical
services.

The Company is continuously engaged in measurement and assessment activities to
ensure desired outcomes are achieved and to identify opportunities for performance
improvement. The Company improves well-performing processes, eliminates
undesirable variation in processes or outcomes, and designs new processes.
Improvement decisions consider opportunities to improve in both leadership and
clinical functions, the resources required to make the improvement, and the Company’s
mission and priorities. The Company imports best practices from other Kaiser
Permanente divisions and collaborates with them to identify successful practices.

The Company organizes and integrates monitoring and evaluation of the quality of care
provided to members by contracted non-Kaiser Permanente facilities and providers, as
well as internally. This is done as part of a comprehensive integrated quality resource
program.

Externally, the Company’s physicians and managers collaborate with contract
providers to continually improve the quality of care and service to its members. Quality
resource program activities are documented by a written contract or letter of
understanding. As representatives of the quality resource program, the Company’s
physicians and operations managers establish performance measures, monitor care and
service, identify issues of concern and when necessary, communicate with appropriate
quality program leaders.

Representatives from the Company and the outside care organization meet at least
annually to evaluate the joint quality management program. Together, they develop a
work plan and assign responsibility to meet targets. The Company does not, however,
delegate responsibility for quality of care. Nurse care coordinators are frequently
deployed to outside care settings to monitor care and service and protect patient rights.

Each contract identifies the performance measure information to be collected, time
frames for reporting, and integration with the Company and outside resource
management programs. Contractual agreements assure linkage of quality, utilization,
member relations, risk management and credentialing.

The Company provided a copy of the February 15, 1996 quality resource program
description which was adopted in February, 1996 for the examiner’s review.

The care of all providers is monitored through the Company’s regional quality
assurance program and action is taken with individual providers as appropriate. In
addition, the care provided by contract hospitals and services is also monitored through
the Company’s regional quality assurance program.

The Company conducts quality assurance audits at least quarterly to measure
variations in care. The Company addresses deviations at two levels: the
system/operating unit level and the individual clinician level. Operations managers
may address facility or support issues so underperforming units can meet their targets.
The clinician feedback program provides data to clinicians and their chiefs so they can
modulate their behavior as appropriate. The quality assurance performance evaluation
and credentialing systems oversee this proactive work.

When problems are identified related to individual performance, educational efforts
including additional training, consultation and/or proctoring with managers and peers
to improve performance are usually attempted prior to disciplinary action. Disciplinary
action occurs where appropriate, and may include reduction of privileges, pay sanctions
and dismissal.

The Company wants its members to be satisfied. Most problems can be resolved with
the help of the health care team. However, if a complaint remains unresolved after
talking with facility and area administrators, the member may submit a written
grievance to: Member Relations, 500 NE Multnomah Street, Suite 100, Portland,
Oregon, 97232. Member relations will conduct a formal review and send the member a
written response within 60 days of the time all pertinent materials are received.
Denial of claims payment for outside services may be appealed to the claims
department manager. The member may submit a final appeal to the member relations
department, as described previously. The Company tracks complaints using an
automated computer system.

Quality resource program activities are documented by a written contract or letter of
understanding. Each contract identifies the performance measure information to be
collected, time frames for reporting, and integration with Company and outside
resource management programs. Contractual agreements assure linkage of quality,
utilization, member relations, risk management and credentialing. A specimen copy of
the contract was provided for the examiner’s review.

The Company has not delegated QA committee review to a contract provider.

Utilization Management (UM)

As a capitated, group practice HMO, the Company does not organize utilization
management as a PPO or indemnity plan might. The Company has a combined quality
and utilization management program.

The notable feature of the Company’s program is that it is directed by the treating
physicians contracted under NW Permanente physicians and not by the Company.
Physicians lead the daily rounding teams in Company hospitals and make the decisions
about which services to render within the benefit. The Company does not use medical
necessity criteria except as required by HCFA (Health Care Financing Administration).
The Company does use Milliman & Robertson or Interqual as references or guides.

Physicians use their own judgment, or follow the Company’s clinical practice guidelines
to determine which care to offer.

Each denial of the benefit for care is subjected to concurrent physician review of
appropriateness. Within the Company, this is accomplished by utilization management
physicians liaisons. The role of these physicians is to assure the mechanisms to
identify cases, alternatives for care, and communication of options is managed in a
clinically appropriate manner. In addition, these physicians perform concurrent
education with their peers, patients and their families.

The UM committee has developed and formally adopted a written plan with
comprehensive policies and procedures. This plan was provided for the examiner’s
review.

The Company has approximately 48 FTEs (full-time equivalents) providing patient
management review and case management. Full-time equivalent is defined as an
employee working 40 hours per week. These staff provide services as part of the
Company’s integrated delivery system. This number does not include staff social
workers who are also engaged in UM and case management activities.

All substantiated quality of care concerns are forwarded to the regional quality
resources program for review through the peer review process. In addition to that, any
trends identified by the local quality committees are reviewed, and corrective action is
recommended.

The Company does not require preauthorization for care received within the Company’s
network, except as required by specific contracts such as Medicare. Preauthorization is
required for any care referred outside the Company’s group practice. This process is
initiated within each medical staff department and required by the regional referral
center before the outside care is accomplished. Members are not responsible for
obtaining preauthorization for services.

Members are encouraged to select a personal physician. As a result, these physicians
have the lead responsibility for providing primary care, making referrals, and
overseeing the quality and continuity of all care. This practice reinforces good
utilization management. As principal providers, the primary physicians are in constant
contact with the Company’s specialists regarding referrals and overall care of the
members. Most of the referrals made by the primary care physicians are within the
Company’s own system. When patients are referred outside of the system, the
Company sends all appropriate information to the specialist and usually specifies the
procedures requested. Most ancillary services, such as lab and x-ray are also provided
within the Company’s system. Very few laboratory tests or procedures are
inadvertently duplicated, since most of the care is provided within the Company’s own
system and because the Company uses a single medical record for each patient.

Members are covered for urgent and emergent care services for unforeseen illness or
injury anywhere in the world. When members are inside the Company’s service area,
they should go to an emergency department affiliated with the Company unless the
travel time to one of these facilities would result in serious medical consequences. In
that case, members should go to the nearest hospital. If a member is admitted to a
hospital not affiliated with the Company, he/she must let the Company know within 48
hours or as soon as reasonably possible.

If a member has an unforeseen medical emergency out of the service area, the member
should go to the nearest hospital. Prior approval is not necessary. The Company will
cover reasonable charges for necessary emergency care from another health care
provider. If a member is admitted to a hospital not affiliated with the Company, he/she
must let the Company know within 48 hours or as soon as reasonably possible.

The Company provides timely standards and expedited appeals. The Company’s
notification standard is 24 hours.

The Company continues to share knowledge among Kaiser Permanente regions, and
adopts best practices in inpatient care management and consequently, inpatient days,
discharges, and average length of stay have significantly decreased over the last three
years. To manage inpatient utilization, the Company has implemented better
screening and case management of emergency admissions, created continuing care
service linkages in home health and long term care, and implemented physician-led
discharge coordination rounds. For the commercial population, days per 1,000
members decreased by nearly 11%, reflecting an 8% decrease in length of stay and a 3%
decrease in the discharge rate. Decline in inpatient care is also due in part to
improvements in medical technology, reflected in the continued increase in ambulatory
surgery. The use of ambulatory and nonacute care settings has been rising as the use
of inpatient care declines.

Confidentiality is ensured via the Company’s regional confidentiality policy. Employees
sign this statement annually, and receive periodic training to reinforce and update
confidentiality issues. The Company’s commitment to customer confidentiality is
communicated to members in the member rights and responsibilities statement.

The Company’s contracts contain provisions related to QA/UM activities. A specimen
contract was provided for the examiner’s review.

The Company never delegates any responsibility or accountability for quality of care,
which utilization issues frequently overlap. The POS (Point of Service) product, in
which the member may choose to go outside of the HMO plan, has certain utilization
review functions which are managed by PM Group, who both underwrite and manage
the out-of-network portion of the POS product. The Company routinely reviews these
utilization reports to identify opportunities to improve the management of these
members who seek out-of-network care under the POS benefit.

COMPLIANCE WITH PRIOR EXAMINATION RECOMMENDATIONS
The Company is in compliance with all but one of the prior examination
recommendations. Please refer to Claims, Paid Standard #1 on page 51 of this report.

CONCLUSION/RECOMMENDATIONS
Page
10 I recommend the Company’s advertising not contain false, deceptive or
misleading statements in accordance with ORS 746.110 and OAR 836-20-220(1).
14 I recommend the Company’s advertising which contains statistics also identify
the source of such statistical information in accordance with OAR 836-20-240(3).
15 I recommend the Company discontinue use of the advertisement referenced
above and that Company advertising contain only true and factual information
regarding the Company’s corporate structure or financial status and if
references to commercial rating systems are used, the purpose of the
recommendation and limitations of the scope and extent of the recommendation
are clearly indicated in accordance with OAR 836-20-275.
27 I recommend the Company give notice to existing insurers when applications for
replacement coverage have been received in accordance with OAR 836-52-830.
42 I recommend the Company establish policies and procedures to identify its SEHI
products in accordance with ORS 732.245 (1) and ORS 733.170. The Company
will be held in noncompliance for SEHI standards 1-16 until a valid population
can be produced.
44 I recommend the Company maintain a complete and detailed description of its
rating and renewal underwriting practices in accordance with ORS
743.737(8)(a).

Page:

48 I recommend the Company file with and obtain approval from the Oregon
Insurance Division for all associations to which insurance policies are offered in
accordance with the provisions of ORS 743.524 and ORS 743.526.

48 I recommend all agents acting as Third Party Administrators be properly
licensed with the Oregon Insurance Division as TPAs in accordance with the
provisions of ORS 744.702.

51 I recommend the Company acknowledge or pay claims within 20 working days of
notification of the claim in accordance with ORS 746.230(1)(b) and OAR 836-80225(
1) and (4).

52 I recommend the Company notify first party claimants of any delay in the
investigation of claims within 20 working days from receipt of the proofs of loss
and every 45 days after the first notice in accordance with OAR 836-80-235(3).

55 I recommend the Company establish procedures to ensure compliance with OAR
836-20-740(3). Claims may not be delayed by more than 14 days by application
of the coordination of benefits provision.

58 I recommend the Company’s claim denials include a proper written explanation
of the basis relied on in the insurance policy in accordance with ORS
746.230(1)(m) and OAR 836-80-235(1) and (2).


MANAGEMENT AFFIRMATION



ACKNOWLEDGMENT


The cooperation and assistance rendered by the officers and employees of the Company
during this examination is hereby acknowledged and appreciated.

A special thanks is extended to the examination coordinators for their courtesy,
assistance, and promptness in providing, correlating, or coordinating all requested
documents and statistics necessary to ensure a smooth transition during the overall
examination process. The responsibilities that were undertaken during this
examination were in addition to the scope of their regular assigned duties.

In addition to the undersigned, Maxine McKibben and Thomas G. Moeller, RHU, CLU
participated in this examination.

Respectfully submitted,

Jann Goodpaster, CIE, CPCU
Examiner in Charge
Market Conduct Section
Department of Consumer and Business Services
Insurance Division
State of Oregon

Gayle L. Woods
Market Conduct Examiner
Market Conduct Section
Department of Consumer and Business Services
Insurance Division
State of Oregon


AFFIDAVIT


STATE OF OREGON }
} ss
County of Marion }

Jann Goodpaster and Gayle L. Woods, being duly sworn, depose and say that the

foregoing market conduct report of examination as of June 30, 1996, of Kaiser

Foundation Health Plan of the Northwest, dba Kaiser Permanente, Portland, Oregon,

subscribed by them is true to the best of their knowledge and belief.

Jann Goodpaster, CIE, CPCU
Examiner in Charge
Market Conduct Section
Department of Consumer and Business Services
Insurance Division
State of Oregon

Gayle L. Woods
Market Conduct Examiner
Market Conduct Section
Department of Consumer and Business Services
Insurance Division
State of Oregon

Subscribed and sworn to before me on the ________ day of ____________________, 1997.

Linda J. Greene
Notary Public for the State of Oregon
My Commission Expires: March 22, 2001



 

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