SB1676 HD1

SECTION 1. The legislature finds that the cost of medical malpractice and hospital professional and general liability coverage continues to rise and that stability in risk financing is needed for the Hawaii health systems corporation and the physicians serving this entity. The escalating costs of premiums, lack of insurers providing coverage in Hawaii, decreased limits of available coverage, and coverage restrictions, make it important to establish a captive insurance company to insure and control exposure to the liability risks of the corporation.

The purpose of this Act is to:

(1) Provide that if the Hawaii health systems corporation establishes a domestic captive insurance company to provide medical malpractice and hospital professional and general liability coverage for the corporation and its facilities and the physicians serving therein, it must submit a feasibility report to the Legislature, a formalized financial plan to the director of finance for approval, and a business plan to the insurance commissioner; and

(2) Ensure that the composition of the corporation's board of directors includes board members with the appropriate knowledge and experience to oversee the establishment and operation of a captive insurance company.

SECTION 2. Chapter 323F, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§323F- Corporation board. (a) The corporation shall be governed by a ten-member board of directors that shall carry out the duties and responsibilities of the corporation.

(b) Eight members of the corporation board shall be appointed by the governor as follows:

(1) Three members from a list of five persons submitted by the president of the senate; provided that at least one of these members shall have experience in the insurance industry;

(2) Three members from a list of five persons submitted by the speaker of the house of representatives; provided that at least one of these members shall have experience in the insurance industry; and

(3) Two members, one of whom shall be the chief executive officer or chief financial officer of an insurer licensed to do business in the state and shall serve as a nonvoting member.

The director of health or the director's designee and the insurance commissioner or the commissioner's designee shall serve as ex officio, nonvoting members.

Any vacancy shall be filled in the same manner provided for the original appointments. The corporation board shall elect its own chair from among its members.

(c) The selection, appointment, and confirmation of any appointed nominee shall be based on ensuring that corporation board members have diverse and beneficial perspectives and experiences and that they include, to the extent possible, representatives of the medical, business, management, law, finance, and health sectors, and patients or consumers. Members of the corporation board shall serve without compensation but may be reimbursed for actual expenses, including travel expenses incurred in the performance of their duties.

(d) Any appointed member of the corporation board may be removed for cause by the governor or for cause by vote of a two-thirds majority of the corporation board's members then in office. For purposes of this section, cause shall include without limitation:

(1) Malfeasance in office;

(2) Failure to attend regularly called meetings;

(3) Sentencing for conviction of a felony, to the extent allowed by section 831-2; or

(4) Any other cause that may render a member incapable or unfit to discharge the duties required under this chapter.

Filing nomination papers for elective office, appointment to elective office, or conviction of a felony consistent with section 831-3.1, shall automatically and immediately disqualify a board member from office.

(e) No member of the corporation board shall be an employee or vendor of the corporation, or an immediate family member thereof. For purposes of this subsection, "immediate family member" means a corporation board employee's or vendor's spouse, child, parent, grandparent, or any related individual who resides in the same household of the employee or vendor."

SECTION 3. Section 323F-4, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) All business of the corporation board shall be conducted at a regular or special meeting at which a quorum is present, consisting of at least a majority of the directors then in office. Any action of the corporation board shall require the affirmative vote of a majority of those present and voting at the meeting; except that a vote of two-thirds of the members of the corporation board then in office shall be required for any of the following actions:

(1) Removal by the corporation board of one of its members[~~, with the exception of the eleventh and twelfth members set forth in section 323F-3, who may only be removed pursuant to sections 323F-10 and 323F-10.5~~];

(2) Amendment by the corporation board of its bylaws;

(3) Hiring or removing the chief executive officer of the corporation; and

(4) Any other actions as provided by the corporation bylaws."

SECTION 4. Section 323F-3, Hawaii Revised Statutes, is repealed.

["~~§323F-3 Corporation board.~~ ~~(a) The corporation shall be governed by a thirteen-member board of directors which shall carry out the duties and responsibilities of the corporation.~~

~~(b) Ten members of the corporation board shall be appointed by the governor as follows:~~

~~(1)~~ ~~One member from region I who resides in the city and county of Honolulu;~~

~~(2)~~ ~~One member from region II who resides in the county of Kauai;~~

~~(3)~~ ~~One member from region III who resides in the county of Maui;~~

~~(4)~~ ~~One member from region IV who resides in the eastern section of the county of Hawaii;~~

~~(5)~~ ~~One member from region V who resides in the western section of the county of Hawaii;~~

~~(6)~~ One member from region II who resides in the county of Kauai or from region III who resides in the district of Hana or on the island of Lanai; provided that in no event shall the member be appointed from the same region for two consecutive terms; and

~~(7)~~ ~~Four at-large members who reside in the State.~~

~~The eleventh member shall be the chairperson of the executive public health facility management advisory committee, who shall serve as an ex officio, voting member.~~

The twelfth member, who shall serve as a voting member, shall be a physician with active medical staff privileges at one of the corporation's public health facilities. The physician member shall serve a term of two years. The initial physician member shall be from region II, and subsequent physician members shall come from regions IV, III, and V respectively. The physician member position shall continue to rotate in this order. The physician member shall be appointed to the corporation board by a simple majority vote of the members of the executive public health facility management advisory committee from a list of qualified nominees submitted by the public health facility management advisory committee for the region from which the physician member is to be chosen. If for any reason a physician member is unable to serve a full term, the remainder of that term shall be filled by a physician from the same region.

~~The thirteenth member shall be the director of health or the director's designee, who shall serve as an ex officio, voting member.~~

Appointments to the corporation board, with the exception of the chairperson of the executive public health facility management advisory committee and the regional physician member, shall be made by the governor, subject to confirmation by the senate pursuant to section 26-34. Prior to the transfer date, the public health facility management advisory committees appointed pursuant to section 323-66 for each county may recommend names to the governor for each position on the corporation board designated for a region which corresponds to its county. After the transfer date, the public health facility management advisory committees appointed pursuant to section 323F-10 for each region may make such recommendations to the governor. The appointed board members shall serve for a term of four years; provided that upon the initial appointment of the first ten members:

~~(1)~~ ~~Two at-large members shall be appointed for a term of two years;~~

~~(2)~~ ~~Three at-large members shall be appointed for a term of three years; and~~

~~(3)~~ ~~Five regional members shall be appointed for a term of four years.~~

~~Any vacancy shall be filled in the same manner provided for the original appointments. The corporation board shall elect its own chair from among its members.~~

(c) The selection, appointment, and confirmation of any nominee shall be based on ensuring that board members have diverse and beneficial perspectives and experiences and that they include, to the extent possible, representatives of the medical, business, management, law, finance, and health sectors, and patients or consumers. Members of the board shall serve without compensation but may be reimbursed for actual expenses, including travel expenses incurred in the performance of their duties.

(d) Any member of the board may be removed for cause by the governor or for cause by vote of a two-thirds majority of the board's members then in office. For purposes of this section, cause shall include without limitation:

~~(1)~~ ~~Malfeasance in office;~~

~~(2)~~ ~~Failure to attend regularly called meetings;~~

~~(3)~~ ~~Sentencing for conviction of a felony, to the extent allowed by section 831-2; or~~

~~(4)~~ ~~Any other cause that may render a member incapable or unfit to discharge the duties required under this chapter.~~

Filing nomination papers for elective office or appointment to elective office, or conviction of a felony consistent with section 831-3.1, shall automatically and immediately disqualify a board member from office."]

SECTION 5. Upon the effective date of this Act, the insurance commissioner or the commissioner's designee shall immediately replace the chairperson of the executive public health facility management advisory committee as an ex officio member of the Hawaii health systems corporation board of directors.

By December 31, 2007, the governor shall appoint the eight appointed members of the board of directors of the Hawaii health systems corporation pursuant to section 323F- , Hawaii Revised Statutes, in section 2 of this Act; provided that:

(1) The terms of existing board members that are to expire on or before June 30, 2007, shall be extended until such time as the new members of the board have been appointed pursuant to section 323F- , Hawaii Revised Statutes, at which time the terms of the existing board members shall expire;

(2) Upon the effective date of this Act, the governor shall first appoint the seven voting board members set forth in section 323F- (b)(1), (2), and (3). Each such appointee shall immediately replace on an interim basis the board member with the earliest appointment to the board, subject to confirmation by the senate during the regular session of 2008;

(3) Following the appointment of interim, voting board members pursuant to paragraph (2), the governor shall next appoint the nonvoting member set forth in section 323F- (b)(3), who shall immediately replace on an interim basis the board member with the earliest appointment to the board, subject to confirmation by the senate during the regular session of 2008;

(4) Immediately after the replacement of appointed board members pursuant to paragraphs (2) and (3), the term of any board member appointed prior to the effective date of this Act shall expire;

(5) On July 1, 2008, the term of each interim board member whose appointment has been confirmed by the senate during the regular session of 2008 shall commence; and

(6) If the appointment of any interim board member fails to be confirmed by the senate, the governor shall immediately appoint a replacement for that board member pursuant to section 323F- , Hawaii Revised Statutes, on an interim basis subject to confirmation by the senate, until that seat is filled by an appointee confirmed by the senate.

SECTION 6. No later than twenty days prior to the convening of the regular session of 2008, the board of directors of the Hawaii health systems corporation shall submit to the legislature a report on the feasibility of establishing a captive insurance company pursuant to section 323F-7(a)(20) to provide medical malpractice and hospital professional and general liability coverage for Hawaii health systems corporation facilities and physicians.

SECTION 7. In organizing a captive insurance company pursuant to section 323F-7(a)(20) to provide medical malpractice and hospital professional and general liability coverage for Hawaii health systems facilities and physicians, the Hawaii health systems corporation shall:

(1) Submit a formalized financial plan to the director of finance for review and approval; and

(2) Upon receiving the approval required by paragraph (1), in addition to the documents required to be submitted by article 19, chapter 431, submit to the insurance commissioner a formalized business plan that includes the establishment of a captive insurer board of directors.

SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 9. This Act shall take effect on July 1, 2007, except that the provisions of section 5 of this Act that extend the terms of existing board members of the Hawaii health systems corporation shall have retroactive application to implement the provisions of that section.

THE SENATE	S.B. NO.	1676
TWENTY-FOURTH LEGISLATURE, 2007		S.D. 2
STATE OF HAWAII		H.D. 1