Section 43.04 - Reporting(1)Financial Concerns. Each HMO shall inform the Commissioner of any extraordinary loss or claim which has the potential to render it unable to meet its obligations as they become due, within five business days of its occurrence.(2)Quarterly Filings. Within 45 days of the close of each fiscal quarter, the Division will collect information according to the format specified by the NAIC or otherwise as specified by the Commissioner.(3)Unaudited Annual Reports. Each year, every HMO shall file with the Commissioner, on or before March 1st, a report about the HMO's preceding fiscal year that is verified by at least two principal executive officers, in the format specified by the NAIC or otherwise specified by the Commissioner in accordance with the provisions of M.G.L. c. 176G, § 10; provided, that if the Commissioner determines that a threat of insolvency exists to the HMO, he or she may require that such report be made available prior to March 1st; in the alternative, as authorized by the Commissioner, the Commissioner may obtain certain annual reporting information from an alternate source. (a) Such annual report shall be made on the latest applicable form of annual statement approved by the NAIC, with any additional information the Commissioner may require for filing with the NAIC for the purpose of eliciting a complete and accurate exhibit of the condition and transactions of the HMO. All financial information reflected in the annual statement shall be maintained and prepared in accordance with accounting practices and procedures prescribed or permitted by the Commissioner. The Commissioner shall require that the annual statement be maintained and prepared in accordance with the Annual Statement Instructions and Accounting Practices and Procedures Manual adopted by the NAIC unless further modified by the Commissioner as he or she considers appropriate. The annual statement shall be subscribed and sworn to by its president and secretary or, in their absence, by two of its principal executive officers. The Commissioner may at other times require any such statements as he or she may deem necessary.(b) A copy of such annual report shall be sent to the NAIC in an electronic filing form as provided by the NAIC.(c) Each domestic and foreign HMO authorized to transact insurance in Massachusetts shall annually on or before March 1st, file with the NAIC a copy of its annual statement blank, along with such additional filings as prescribed by the Commissioner for the preceding year. The information filed with the NAIC shall be in the same format and scope as that required by the Commissioner and shall include the signed jurat page and the actuarial certification. Any amendment or addendum to the annual statement filing subsequently filed with the Commissioner shall also be filed with the NAIC. Foreign HMOs that are domiciled in a state that has a law substantially similar to 211 CMR 43.04 shall be deemed to be in compliance with 211 CMR 43.04.(d) The reporting provisions of 211 CMR 43.04(3) shall apply to all domestic, foreign and alien HMOs that are authorized to transact business in Massachusetts.(4)Audited Annual Reports. Consistent with M.G.L. c. 176G, § 10 and c. 175, § 4, all HMOs shall have an annual audit by an independent certified public accountant and shall file an audited financial report with the Commissioner, prepared in accordance with statutory accounting practices and procedures prescribed or permitted by the Commissioner, on or before June 1st for the preceding fiscal year. Extensions of the filing date may be granted by the Commissioner for 30-day periods upon showing by the HMO or its independent certified public accountant valid justification for such extension. The request for any extension must be received prior to the due date of the audited financial report in sufficient detail to permit the Commissioner to make an informed decision with respect to the requested extension.(a)Designation of Independent Certified Public Accountant. All HMOs shall notify the Commissioner of the engagement of a certified public accountant within 30 days of such appointment if such accountant was not the accountant for purposes of 211 CMR 43.00 for the immediately preceding year. Such notification shall include a statement by the president, treasurer and chairman of the audit committee (if any) as to whether in the 24 months preceding the most recent year end, there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosures, or auditing procedures which disagreements if not resolved to the satisfaction of the former accountant would have caused him or her to make reference to the subject matter of the disagreement in connection with his or her opinion. The HMO shall also in writing request such former accountant to furnish it with a letter addressed to the Commissioner stating whether he or she agrees with the statements contained in its letter and, if not, stating the reasons why he or she does not agree. The HMO shall furnish the responsive letters from the former accountant to the Commissioner together with its own.(b)Qualification of Independent Certified Public Accountant. The Commissioner shall not recognize any person or firm as an independent certified public accountant who is not duly licensed to practice and in good standing under the laws of Massachusetts (or in a state with licensing requirements similar to Massachusetts) and a member in good standing of the American Institute of Certified Public Accountants. Except as otherwise provided in 211 CMR 43.04(4)(b), a certified public accountant shall be recognized as independent as long as he or she conforms to the standards of the profession, as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants, and Rules and Regulations and Code of Ethics and Rules of Professional Conduct of the Massachusetts Board of Public Accountancy (or similar code). The Commissioner may hold a hearing to determine whether a certified public accountant is qualified under 211 CMR 43.00, whether he or she is independent, whether an audit performed by him or her conforms to generally accepted auditing standards, or whether the annual audited financial report on which he or she has given his or her opinion presents fairly the financial position and results of operations of the HMO. After a negative ruling on any of the above issues, the Commissioner may require the HMO to replace the accountant.(c)Availability and Maintenance of Working Papers of the Independent Certified Public Accountant. The HMOs shall require the independent certified public accountant to make available for review by the Commissioner or his or her appointed agent, the work papers prepared in the conduct of the audit which shall include its parent and affiliates as they relate to the examination of the HMO. The HMO shall require that the accountant retain the audit work papers for a period of not less than five years after the period reported upon. The records of any such audit, examination, or other inspection and the information contained in the records, reports, or books of an HMO shall be confidential and open only to the inspection of the Commissioner and his or her examiners and assistants, except to the extent that production of such records is required by law in a civil or criminal proceeding affecting the HMO. The final report of any such audit, criminal proceeding, or other inspection by or on behalf of the Commissioner shall be a public record. 1. The aforementioned reviews by the Commissioner shall be considered investigations and all working papers obtained during the course of such investigations shall be confidential. If the Commissioner considers them to be relevant, the HMO must require that the independent certified public accountant provide photocopies of any of his or her working papers and these papers may be retained by the Commissioner.2. "Working Papers", as referred to in 211 CMR 43.04(4)(c), include, but are not necessarily limited to, schedules, analyses, reconciliations, abstracts, memoranda, narratives, flow charts, copies of company records or other documents prepared or obtained by the accountant and his employees in the conduct of their examinations of the HMO.(d)Annual Audited Financial Report. The report shall include: 1.Opinion of the Independent Certified Public Accountant.2.Audited Financial Statements, including:b. statement of revenues and expenses;c. statement of cash flows;d. statement of changes in capital and surplus; ande. notes to financial statements.f. In general, and except as otherwise provided herein, the financial statements filed pursuant to 211 CMR 43.04(4) should be prepared as follows: i. The financial statements shall be comparative, presenting the amounts as of the last date of the current year and the amounts as of the year end immediately preceding.ii. If the HMO is included in consolidated or combined financial statements prepared on the basis of statutory accounting practices and procedures prescribed or permitted by the Commissioner, such financial statements must also be included in the filing of the audited financial report. An HMO may make written application to the Commissioner for approval, at his or her discretion, to file an annual audited consolidated or combined financial report in lieu of a separate annual audited financial report for the HMO. In such cases, and in cases of HMOs that have subsidiaries that are required to be consolidated under statutory accounting practices and procedures prescribed or permitted by the Commissioner, the annual audited financial report shall include a columnar consolidating or combining worksheet, as follows: - amounts shown on the consolidated or combined audited financial report shall be shown on the worksheet;
- amounts for the HMO shall be stated separately;
- non-HMO operations may be shown on the worksheet on a combined or individual basis; and
- explanations of consolidating and eliminating entries shall be included. iii. A reconciliation shall compare the amounts shown in the HMO columns of the worksheet with comparable amounts in the HMO's annual statement of financial condition.
3.Report of Significant Deficiencies in Internal Controls. In addition to the annual audited financial statements, each HMO shall furnish the Commissioner with a written report prepared by the accountant describing significant deficiencies in the HMO's internal control structure noted by the accountant during the audit. SAS No. 60, Communication of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants) requires an accountant to communicate significant deficiencies (known as "reportable conditions") noted during a financial statement audit to the appropriate parties within an entity. No report need be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by the HMO with the Division. The HMO is required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if such actions are not described in the accountant's report. (e)Notification of Adverse Financial Condition. An HMO subject to 211 CMR 43.00 shall require the independent certified public accountant to immediately notify in writing an officer and all members of its Board of Directors of any determination by the independent certified public accountant that the HMO has materially misstated its financial condition as reported to the Commissioner for the fiscal year ended immediately preceding. The HMO shall furnish such notification to the Commissioner within five days of receipt thereof. If the accountant, subsequent to the date of the audited financial report pursuant to 211 CMR 43.04(4)(d) 2., becomes aware of facts which would have affected his or her report, the Commissioner notes the obligation of the accountant to take such action as prescribed by Section 561 of the Statement of Auditing Standards Number One of the American Institute of Certified Public Accountants.(5)Examination by the Commissioner. The Commissioner shall determine the nature, scope and frequency of examinations conducted pursuant to M.G.L. c. 176G, § 10. Such examinations may cover all aspects of the HMO's assets, condition, affairs and operations and may include and be supplemented by audit procedures performed by independent certified public accountants as herein provided. (a) The type of examinations performed by the Commissioner's examiners may include, but shall not be limited to, the following:1. Financial surveillance will consist of a review of the audited financial report and annual statement and may include a review of the independent certified public accountant's working papers if expressly required and a general review of the HMO's corporate affairs and operations to determine compliance with Massachusetts General Laws and the Rules and Regulations of the Commissioner. The examiners may perform alternative or additional examination procedures to supplement those performed by the independent certified public accountants when the examiners determine that such procedures are necessary to verify the financial condition of the HMO;2. Targeted examinations will cover specific areas of an HMO's operations as the Commissioner may deem appropriate; and3. Comprehensive examinations will be performed when the report of the accountant as provided for in 211 CMR 43.04(4)(d) or the notification required by 211 CMR 43.04(4)(e) or the results of financial surveillance or targeted examinations or other circumstances indicate in the judgment of the Commissioner that a complete examination of the condition and affairs of the HMO is necessary. Such examinations may be conducted by the Commissioner or his or her appointed agent.(b) At the completion of each examination described above, the examiner appointed by the Commissioner shall make a full and true report on the results of the examination. Each report shall include a general description of the scope of the examination performed and the extent to which the examiners utilized the work of the HMO's accountants or other certified public accountants to supplement their examination. The cost of all work performed by independent certified public accountants shall be borne by the HMO.(6)Exemptions. Upon written application of any HMO, the Commissioner may grant an exemption from compliance with 211 CMR 43.04 or portions thereof if the Commissioner finds, upon review of the application, that compliance with 211 CMR 43.00 would constitute a financial or organizational hardship upon it or its independent certified public accountant. An exemption may be granted at any time for any specified period. Within ten days of receipt of a denial of a written request for an exemption from 211 CMR 43.00, the HMO may request in writing a hearing on its application for exemption. Such hearing shall be held in accordance with M.G.L. c. 30A and the practices of the Commissioner pertaining to administrative hearings.(7)Material Changes. All material changes to reporting information contained in the HMO's application, including but not limited, to the HMO's articles of incorporation and by-laws, Board of Directors, management structure or key management personnel, investment guidelines, letters of financial support, service area, amendments to the evidence of coverage, significant changes to provider networks, the name under which the HMO does business, and all changes in controlling interest of the HMO, shall be submitted to the Commissioner on or before their effective dates.(8)Independent Certified Accountant. Pursuant to M.G.L. c. 176G, § 10 and c. 175, § 4, the Commissioner may require HMOs to comply with the provisions of 211 CMR 43.00.(9)Additional Reports. The Commissioner, if he or she so determines the need exists, may require the HMO to submit additional reports other than those specifically required by 211 CMR 43.00.Amended by Mass Register Issue 1349, eff. 10/6/2017.