Financial Statements

Provider Type

  • Participating Physician Groups (PPG)
  • Hospitals

Health Net monitors and evaluates the financial viability of its delegated and capitated participating providers and maintains adequate procedures to ensure providers' reports and financial information confirms each provider is financially solvent (section 1300.75.4.5(a)(1) of Title 28 of the California Code of Regulations (CCR)).

All providers with a capitated Provider Participation Agreement (PPA) are required to submit their annual financial statements to Health Net 150 days after the close of the participating physician group's (PPG's) or hospital's fiscal year. PPGs and hospitals are further required to submit to Health Net quarterly financial updates, prepared by the provider organization and reflecting year-to-date activity, within 45 business days after the close of the calendar quarter or most recent quarter, if provider's fiscal year is different from calendar year.

PPGs' and hospitals' financial statement packets should include:

  • Signed Health Net financial certification form (for quarterly unaudited financials only).
  • DMHC quarterly and-or annual financial survey report forms as detailed in subsection 1300.75.4.2(b) and ( c) of Title 28 of the California Code of Regulations (CCR) including:
    • balance sheet
    • an income statement
    • a statement of cash-flow 
    • ­a statement of net worth
    • cash and cash equivalent
    • receivables and payables
    • risk pool and other incentives
    • claims aging
    • notes to financial statements
    • enrollment information
    • mergers, acquisitions and discontinued operations
    • the incurred but not reported (IBNR) methodology
    • administrative expenses
    • footnote disclosures (for annual audited financial survey)

For nonprofit entities, refer to subsection 1300.75.4.2(b) and (c) of the California Code of Regulations for additional requirements.

PPGs and hospitals must submit these quarterly financial updates and annual audited financial statements to the Financial Oversight Department

PPGs and hospitals must also ensure compliance with Health Net's financial solvency standard benchmarks and related contractual requirements to make sure their financial status is stable and not deteriorating over time. If the PPGs and hospitals fail to meet the financial solvency standard, and it is determined by Health Net that a corrective action plan (CAP) is needed, the PPGs and hospitals must submit a CAP within 30 days from the date of request. Below are the 14 financial solvency review standard benchmarks that must be met:

Provider Type

CATEGORY

STANDARD

PPG, Hospital

Working Capital

Must be positive

PPG, Hospital

Tangible Net Equity

Must be positive

PPG  Required Tangible Net Equity Refer to 1300.76(c)(1) of Title 28 of CCR
PPG

Cash to Claims Ratio

= or > 0.75

PPG, Hospital

Cash to Payable Ratio

= or > 0.50

PPG, Hospital

Profit Margin Ratio

> 0.00

PPG

Medical Loss Ratio

= or < 0.85

PPG, Hosital

Debt-to-Equity Ratio

= or < 1.0

PPG, Hospital

Accounts Receivable Turnover

= or > 11.81

PPG, Hospital

Average Days to Collect

= or < 30 days

PPG

Average Claims Liability

between 2.5 & 3.5 months

PPG

General and Administrative Expenses

= or < 0.15

Hospital  Total Operating Expense  = or < 1.0
PPG, Hospital

Total Z-Score

= or > 1.81

If the PPG is determined to be noncompliant, a corrective action plan (CAP) must be filed simultaneously with the financial survey to the Department of Managed Health Care (DMHC).

PPGs With Sub-Delegating Risk Arrangements

PPGs with sub-delegating risk arrangements are required to monitor and evaluate the financial viability of their delegated and capitated participating providers and maintain adequate procedures to ensure providers' reports and financial information confirms each provider is financially solvent according with section 1300.75.4.5(a)(1) of Title 28 of the California Code of Regulations (CCR) and with Health Net’s financial benchmark as outlined above. When requested by Health Net, PPGs are required to provide copies of their monitoring policies and procedures within 30 days of Health Net’s request.