The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us) STATE OF MICHIGAN FRANK J. KELLEY, ATTORNEY GENERAL Opinion No. 5596 November 27, 1979 PUBLIC HEALTH CODE: Health maintenance organizations HEALTH MAINTENANCE ORGANIZATIONS: Organization of a separate legal entity with separate policy-making body in a new, noncontiguous service area A health maintenance organization must organize a financially independent and separate legal entity with a separate policy-making body in order to obtain a license to operat in a service area not contiguous to the service area it is already licensed to serve. Honorable George Cushingberry, Jr. Michigan State Representative The Capitol Lansing, Michigan You have asked my opinion relative to the following question: Is a health maintenance organization required to organize a separate legal entity with a separate policy making body in order to operate in a new service area not contiguous with the service area it is presently licensed to serve? The licensing and regulation of health maintenance organizations, as of September 30, 1979, is governed by the Public Health Code, 1978 PA 368, as amended, MCLA 333.1101 et seq; MSA 14.15(1101) et seq. Most of the provisions concerning health maintenance organizations are contained in Secs. 21001 through 21099 which comprise Part 210 of the Public Health Code. These provisions are essentially a reenactment of the Health Maintenance Organization Act, 1974 PA 264, MCLA 325.901 et seq; MSA 14.1280(1) et seq, the predecessor regulatory statute repealed by the Public Health Code. Under Sec. 21041 of the Public Health Code, a license to operate a health maintenance organization is issued to a legal entity satisfying certain statutory requirements and administrative rules. Legal entity is defined by Sec. 21006(2) of the Public Health Code as follows: '(2) 'Legal entity' means a person or an operation or activity carried on by the person which: (a) Is financially separate and independent of any other operation or activity carried on by that person. (b) Has a separate and independent policy making body which is granted unrestricted authority to determine policies and procedures of that operation or activity. The policy making body is a governing body for purposes of this part.' Various provisions contained in Part 210, such as Sec. 21031(h) and Sec. 21034(h), evidence that a legal entity's health maintenance organization is conceived as operating primarily within the confines of a specific geographic area. 'An application to the department for a license shall be verified by an officer or authorized representative of the applicant, shall be on a form authorized and provided by the department, and shall include: h) A statement describing with reasonable certainty the primary geographic area to be served by the organization.' Sec. 21031(h) 'The department, with the concurrence of the insurance bureau, shall issue a license to a health maintenance organization upon being satisfied that: h) Within the area served by the health maintenance organization, the service will be available, accessible, and provided as promptly as appropriate to each of its enrollees in a manner which assures continuity, and will be available and accessible to enrollees 24 hours a day and 7 days a week for the treatment of emergency episodes of illness or injury.' Sec. 21034(h) Rules originally promulgated pursuant to the Health Maintenance Organization Act, supra, which in accordance with Secs. 1201 and 25201(2) of the Public Health Code continue in effect, implement this concept of geographic limitation assigning it the term 'service area.' Rule 130(b), R 325.6130, defines 'service area' as follows: '(b) 'Service area' means a defined geographical area in which health maintenance services are generally available and readily accessible to enrollees, and wherein health maintenance organizations may market their contracts to employers subject to section 43 (1) of the act.' While there does not exist any explicit bar to a legal entity obtaining a license to operate in two or more non-contiguous service areas, Part 210 of the Public Health Code and the administrative rules imply such a bar and a prior administrative pronouncement has enforced such a bar. Rule 210, R 325.6130, addresses the limited service area concept and provides: '(1) An applicant or potential applicant shall file with the director a description of the geographical area of service defined by the boundaries of political subdivisions, census tracts, U.S. postal zip codes, or health facility service areas. (2) The service area shall not exceed the boundaries of a health facility service area wherein an affiliated acute care hospital and a primary care center are located unless the population density of the representative health facility service areas exceeds a population density of 1,000 per square mile. The director may approve an extension of the service area into contiguous health facility service areas having a population density of more than 1,000 per square mile and which are adjacent to a health facility service area having an affiliated acute care hospital and a primary care center when satisfied that accessibility to health care has not been compromised. (3) The service area shall be subject to the approval of the director.' I have been informed that all applications received to date have described the intended service area by specifying borders of a 'health facility service area' which is defined in Rule 115(f), R 325.6115, as being one of the '77 geographic areas as defined in the Michigan State Plan for Hospital and Medical Facilities Construction, 1973-74, published by the Michigan Department of Public Health.' Further, I have been informed that in the sole instance in which a legal entity possessing a license to operate a health maintenance organization has sought authority to operate in an area not contiguous to its existing service area, the legal entity was advised of the necessity of organizing a separate legal entity with a separate policy-making body in order to qualify for licensure in the proposed non-contiguous service area. Accordingly, the law has been interpreted and applied administratively to permit a health maintenance organization to geographically expand the scope of an existing license into contiguous service areas and to bar entry into non-contiguous service areas unless a separate legal entity is organized. This construction by the agency charged with its administration is entitled to serious consideration. Administrative construction will not be overturned unless clearly wrong, or unless a different construction is plainly required. Ford Motor Co v State Tax Comm, 400 Mich 499; 255 NW2d 608 (1977); Magreta v Ambassador Steel Co, 380 Mich 513; 158 NW2d 473 (1968); Boyer-Campbell Co v Fry, 271 Mich 282; 260 NW 165 (1935); United States v Moore, 95 US 760, 24 L Ed 588 (1877). Administrative rules adopted pursuant to statutory authority have the force and effect of law. Mehrer v Michigan Dept of Social Services, 24 Mich App 453; 180 NW2d 345 (1970). Further, the administrative interpretation and application is consistent with the intent of the legislature as expressed in Part 210 of the Public Health Code as well as its predecessor, the Health Maintenace Organization Act, supra, that subscriber participation in the operation of the health maintenance organization be fostered and facilitated. This legislative intent is apparent in Secs. 21051 and 21081 of the Public Health Code, which require that at least one-third of the membership of the governing body of the health maintenance organization consist of subscribers and, at least annually, a meeting be held at which the governing body is present and subscribers receive information concerning the activities of the health maintenance organization, make complaints and transact other business. If a health maintenance organization is permitted to maintain one legal entity for a single service area composed of two or more geographically separated areas, the potential subscriber attendees from the service subarea in which a meeting or other subscriber function was being held may be discouraged from attending. In addition, assuming the total number of subscriber representatives on the governing body was split between the subareas, subscribers from one subarea would only have one-sixth or less actual representation on the governing board, thus diluting their voting power on any issue. The effectiveness of those subscriber members on the governing board would be diminished because they may not be as well informed about the conditions and problems affecting other than their own service subarea. Similarly, other administrative rules governing the operation of a health maintenance organization, such as Rule 315, which requires at least quarterly governing body meeting open to enrollees, would lose their impact and meaning because of the geographical separation of the component service subareas. Thus, permitting one health maintenance organization to use one license and a single governing body for a service area composed of parts which are geographically separated would minimize subscriber participation in the operation of the health maintenance organization which is contrary to the clear intent of the Health Maintenance Organization Act. It is, therefore, my opinion that a health maintenance organization must organize a financially independent and separate legal entity with a separate policy-making body in order to obtain a license to operate in a service area not contiguous to the service area it is already licensed to serve. Frank J. Kelley Attorney General (1)