[Federal Register Volume 77, Number 167 (Tuesday, August 28, 2012)]
[Notices]
[Pages 52061-52066]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-21158]
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Application No. L-11688]
Notice of Proposed Exemption Involving Sharp HealthCare Located
in San Diego, CA
AGENCY: Employee Benefits Security Administration, U.S. Department of
Labor.
ACTION: Notice of proposed exemption.
-----------------------------------------------------------------------
SUMMARY: This document contains a notice of pendency (the Notice)
before the Department of Labor (the Department) of a proposed
individual exemption from certain prohibited transaction restrictions
of the Employee Retirement Income Security Act of 1974 (the Act or
ERISA). The transactions involve the Sharp HealthCare Health and Dental
Plan (the Plan). The proposed exemption, if granted, would affect the
Plan, its participants and beneficiaries, Sharp Healthcare (Sharp), and
the Sharp Health Plan (the HMO).
[[Page 52062]]
DATES: Effective Date: The proposed exemption, if granted, will be
effective as of August 1, 2006.
DATES: Written comments and requests for a public hearing on the
proposed exemption should be submitted to the Department within 33 days
from the date of publication of this Federal Register Notice.
ADDRESSES: Comments and requests for a hearing should state: (1) The
name, address, and telephone number of the person making the comment or
request, and (2) the nature of the person's interest in the proposed
exemption and the manner in which the person would be adversely
affected by the exemption, if granted. A request for a hearing must
also state the issues to be addressed and include a general description
of the evidence to be presented at the hearing. All written comments
and requests for a public hearing concerning the proposed exemption
should be sent to the Office of Exemption Determinations, Employee
Benefits Security Administration, Room N-5700, U.S. Department of
Labor, 200 Constitution Avenue NW., Washington, DC 20210, Attention:
Application No. L-11688. Interested persons are also invited to submit
comments and/or hearing requests to EBSA via email or FAX. Any such
comments or requests should be sent either by email to:
[email protected], or by FAX to (202) 219-0204 by the end of the
scheduled comment period. The application for exemption and the
comments received will be available for public inspection in the Public
Documents Room of the Employee Benefits Security Administration, U.S.
Department of Labor, Room N-1513, 200 Constitution Avenue NW.,
Washington, DC 20210. Comments and hearing requests will also be
available online at www.regulations.gov and www.dol.gov/ebsa, at no
charge.
Warning: If you submit written comments or hearing requests, do not
include any personally-identifiable or confidential business
information that you do not want to be publicly-disclosed. All comments
and hearing requests are posted on the Internet exactly as they are
received, and they can be retrieved by most Internet search engines.
The Department will make no deletions, modifications or redactions to
the comments or hearing requests received, as they are public records.
FOR FURTHER INFORMATION CONTACT: Mr. Warren Blinder, Office of
Exemption Determinations, Employee Benefits Security Administration,
U.S. Department of Labor, telephone (202) 693-8553. (This is not a
toll-free number.)
SUPPLEMENTARY INFORMATION: This document contains a notice of proposed
exemption that, if granted, would provide exemptive relief from
sections 406(a)(1)(A), 406(a)(1)(D), 406(b)(1), and 406(b)(2) of the
Act, effective August 1, 2006, for the purchase of health insurance by
the Plan from the HMO, a non-profit health maintenance organization
wholly owned by the Plan's sponsor, Sharp, through a 100% non-profit
membership interest.
Summary of Facts and Representations \1\
---------------------------------------------------------------------------
\1\ The Summary of Facts and Representations is based on the
Applicant's representations and does not reflect the views of the
Department.
---------------------------------------------------------------------------
1. Background
Sharp is an integrated health care delivery system located in San
Diego County. Sharp was created in 1946 as a non-profit association to
raise funds to build a hospital and in 1955, based on a lead donation
from Thomas E. Sharp, a hospital was built on 12.5 acres in Kearney
Mesa, California. From that hospital, Sharp HealthCare has grown into a
countywide system comprised of five hospitals, multiple clinics, and
two pharmacies.
In 1992, Sharp established its own licensed HMO through a
subsidiary corporation called ``Sharp Health Plan.'' The HMO is a
501(c)(4) corporation and Sharp is its sole member, with appointment
authority over 100% of the HMO's Board of Director positions. The HMO
offers a provider network that consists of 5 Sharp-affiliated
hospitals, 5 Sharp-affiliated urgent care clinics, 11 Sharp-affiliated
pharmacies, and 347 Sharp-affiliated (or Sharp-contracted) physicians
in 4 different medical groups. Additionally, the HMO offers access to 7
non-Sharp affiliated hospitals, 25 non-Sharp affiliated urgent care
clinics, approximately 360 non-Sharp affiliated pharmacies, and 570
non-Sharp affiliated physicians comprised of 290 physicians in 4
different medical groups, and 280 independent physicians. The HMO is
licensed by the California Department of Managed Health Care and is
offered to San Diego employers and individuals. The Applicant notes
that the HMO and Sharp's facilities have a good reputation in San Diego
County and have received numerous awards for quality over the years.
Additionally, Sharp states that it has more licensed hospital beds than
any other health care provider in San Diego County.
Sharp provides health benefits to its employees under the Plan. As
of March 2012, the Plan had 10,993 participants and provided benefits
to approximately 24,339 individuals. In 1993, Sharp began providing its
employees' medical and vision benefits under the HMO. As the HMO is the
only available option under the Plan, all participants were covered
under the HMO. Each year, Sharp establishes a flat employee
contribution rate for different levels of coverage (e.g., employee-
only, employee plus-one, employee plus-family) and Sharp pays any
remaining premiums based on the rates that it negotiates with the HMO.
Between 2006 and 2010 Sharp paid approximately 85% of the premium cost
of such coverage and employees paid the remaining 15% through pre-tax
salary deferral contributions. Employee contributions are collected by
Sharp, put into its general account and used as part of the premium
payment to the HMO. The Applicant represents that all such plan assets
are spent on premiums almost immediately upon being withheld from
employees' paychecks. Employees also make co-payments directly to the
actual providers of the medical care they receive, including Sharp, if
the services have been provided in one of its facilities.
The HMO sets premiums for Sharp employees based on the experience
of the Sharp employee population, as is the case with its other
employer clients. The Applicant notes that, as a non-profit, the HMO
only retains sufficient earnings to maintain its legally required
reserves. In addition, the Applicant states that the HMO reduces its
claims administration costs and is able to get better capitated rates
from providers by pooling all of the covered lives under the HMO,
rather than negotiating separate claims administration and capitated
rate negotiations for just the Sharp employee population. According to
the Applicant, this reduces the overall cost of health benefits under
the Plan, ultimately reducing the cost Sharp employees pay for their
coverage.
Sharp is designated as the plan administrator of the Sharp
HealthCare Group Health and Welfare Plan.\2\ In the past, Sharp's Board
of Directors had not appointed an administrative committee to act as
the plan administrator on behalf of Sharp, but going forward, the Sharp
Board of Directors will appoint a committee to act as the plan
administrator for the Plan in place of
[[Page 52063]]
Sharp, which will be comprised of the: (1) Senior Vice President,
General Counsel, (2) Senior Vice President/Chief Financial Officer, and
(3) Vice President/Compensation and Benefits. The Applicant states that
although each of these employees receives a portion of their
compensation based on factors that include ``target net revenue,'' \3\
Sharp's use of the HMO for its employees has little, if any, impact on
such compensation. The Applicant explains that the portion of target
net revenue attributable to the Plan's use of the HMO for its employees
is immaterial, and any premiums that are paid to the HMO are ultimately
offset as a revenue item by fees the HMO pays to Sharp for medical and
other services.
---------------------------------------------------------------------------
\2\ The Applicant states that Sharp, its Board of Directors,
Anne Stephenson, Ann Pumpian and Carlisle Lewis, III, Esq., are all
fiduciaries within the meaning of section 3(21) of the Act.
\3\ According to the Applicant, target net revenue is made up of
all Sharp revenue, except ``Medi-Cal'' hospital fee program
receipts, reduced by bad debt.
---------------------------------------------------------------------------
Sharp's Vice President of Compensation and Benefits conducts an
annual review to determine the reasonableness of total premiums paid by
Sharp employees for coverage under the HMO. Sharp's Vice President of
Compensation and Benefits also reviews the ``employee share'' rates to
make sure that they are competitive when compared to the rates their
peer employers are charging. The Applicant notes that the Vice
President of Compensation and Benefits has used the services of outside
vendors, such as Keenan & Associates and SDH Consultants to assist her
in this comparison, and based on these surveys, Sharp has concluded
that the premiums paid, as well as the employees' share of such
premiums, for coverage under the HMO were reasonable.
2. Request for Relief
The Applicant represents that for 18 years, Sharp has provided its
employees with health insurance through the HMO, under the mistaken
belief that this coverage was permissible under Prohibited Transaction
Exemption (PTE) 79-41, 44 FR 46365 (August 7, 1979). The Applicant
relates that, on April 5, 2011, the Los Angeles Regional Office of the
Department of Labor (the Department) concluded an audit of the Plan and
determined that the Plan's provision of coverage under the HMO did not
meet the requirements of Section II(a)(1) of PTE 79-41, as described
below.
PTE 79-41 provides that the restrictions of sections 406(a),
406(b)(1) and (2), and 407(a) of the Act and the taxes imposed by
section 4975(a) and (b) of the Code, by reason of section 4975(c)(1)(A)
through (E) of the Code, shall not apply to the sale, in any taxable
year, by an insurance company which is a party in interest or
disqualified person with respect to an employee benefit plan, of life
insurance, health insurance, and annuities if certain conditions are
met.
Section II(a) of PTE 79-41 provides that the insurance company
making the sale must:
(1) [Be] a party in interest or disqualified person with respect
to the plan by reason of a stock or partnership (including a joint
venture) affiliation with the employer establishing or maintaining
the plan that is described in section 3(14)(E) or (G) of the Act* *
*,
(2) [Be] licensed to sell insurance in at least one of the
United States or in the District of Columbia,
(3) [Have] obtained a Certificate of Compliance from the
insurance commissioner of its domiciliary state within the 18 months
prior to the date when the transaction is entered into or when such
certificates were last made available by the domiciliary state, if
earlier, and
(4)(i) [Have] undergone a financial examination (within the
meaning of the law of its domiciliary state) by the insurance
commissioner of such state within 5 years prior to the end of the
year preceding the year in which the sale occurred, or
(ii) [Have] undergone an examination by an independent certified
public accountant for its last completed taxable year.
The Applicant states that Section II(a)(1) has not been complied
with because Sharp does not have a stock or partnership interest in the
HMO, but instead is the sole member of the HMO, and as such, has the
power to appoint 100% of the HMO's Board of Directors. Nevertheless,
the Applicant contends that Sharp's control of the HMO is no less
complete than it would be if Sharp's ownership interest was denominated
in the form of stock or a partnership interest.\4\
---------------------------------------------------------------------------
\4\ The Applicant maintains that the DOL and the IRS are of the
view that, in the context of a non-profit corporation, control may
be exercised through appointment power over the Board of Directors
rather than stock or partnership interests. See ERISA Opinion Letter
82-48A (September 16, 1982), and Treasury Regulation 1.414(c)-5(b).
The Department expresses no opinion herein as to the applicability
of the aforementioned authorities to the covered transactions.
---------------------------------------------------------------------------
The Applicant maintains that the general premise undergirding PTE
79-41 is no less applicable in the case of a non-profit health care
system whose ownership is through membership rather than a shareholder
interest. In this regard, the Applicant states that health systems that
maintain their own HMO or insurance policies invariably use those
policies to provide health insurance benefits to their own employees.
Thus, according to the Applicant, it would be ``contrary to ordinary
business practices, and unnecessarily restrictive, to require'' an
employer who is in the business of selling health insurance to purchase
such health insurance for its employees from a competitor.
Furthermore, Sharp contends that its control of the HMO via a non-
profit membership interest presents a non-substantive, technical
violation of the class exemption that has no bearing on the relief
afforded to the Plan and its parties in interest, or the protection of
the interests of the Plan and its participants and beneficiaries. The
Applicant states that the relationship between Sharp and the HMO
reflects the ``qualities'' behind PTE 79-41's affiliation requirement.
In this regard, the Applicant observes that Sharp and the HMO are part
of a closely connected system that have a common mission and integrated
operations, and that Sharp could not find an independent carrier that
would be as responsive to employer and participant needs as the HMO.
According to the Applicant, the fact that Sharp and the HMO are non-
profit corporations and do not have stock or partnership interests,
and, therefore, exercise control through Sharp's Board of Directors'
appointment authority, does not in any way diminish Sharp's control
over and comprehensive integration with the HMO. Thus, the Applicant
submits that Sharp's failure to meet the affiliation condition of PTE
79-41, as described herein, is merely technical in nature and not
meaningful to the Department's granting of relief under PTE 79-41.
The Applicant is therefore requesting a retroactive exemption from
sections 406(a)(1)(A), 406(a)(1)(D), 406(b)(1) and 406(b)(2) of the Act
for the Plan's purchase of health care coverage from the HMO, which
Sharp wholly-owns through a non-profit membership interest, effective
August 1, 2006 through and until the date of publication of a final
grant of exemption in the Federal Register. Furthermore, the Applicant
is requesting a prospective exemption from sections 406(a)(1)(A),
406(a)(1)(D), 406(b)(1) and 406(b)(2) of the Act for the Plan's
continued purchase of health care coverage from the HMO, which Sharp
wholly-owns through a non-profit membership interest, effective as of
the date of publication of a final grant of exemption in the Federal
Register.\5\
---------------------------------------------------------------------------
\5\ The Applicant represents that Sharp provides certain
services to the HMO in connection with the operation of its
integrated health care delivery system. The Applicant states that
Sharp is of the view that these services are within the scope of
exemptive relief provided by section 408(b)(2) of ERISA. The
Department is expressing no opinion herein regarding whether the
provision of a service by Sharp to the HMO in connection with the
operation of its integrated health care delivery system is within
the scope of relief provided by that statutory exemption.
---------------------------------------------------------------------------
[[Page 52064]]
After considering the Applicant's request, the Department has
determined to propose an individual prohibited transaction exemption.
The proposed exemption has been requested in an application filed by
Sharp pursuant to section 408(a) of ERISA and in accordance with the
procedures set forth in 29 CFR 2570, Subpart B (55 FR 32836, August 10,
1990).
3. Compliance With Conditions of PTE 79-41
The Applicant urges the Department to propose exemptive relief,
because, according to the Applicant, all of the conditions of relief
required under PTE 79-41 have been satisfied with respect to the Sharp
arrangement described herein, except the condition in Section II(a)(1),
requiring that Sharp control the HMO via a stock or partnership
ownership interest. In this regard, the Applicant represents that the
HMO: Is licensed as an HMO in California by the Department of Managed
Healthcare; has been certified by the California Department of Managed
Healthcare as being in compliance with the requirements for a licensed
HMO within the last 18 months; and has undergone a financial
examination by the California Department of Managed Healthcare within
the last five years and is audited by an independent certified public
accountant each year, including its last completed taxable year.
Therefore, the Applicant maintains that Sharp has satisfied the
conditions set forth in Sections II(a)(2), (3), and (4) of PTE 79-41.
The Applicant also represents that the amount the Plan pays to Sharp
for HMO coverage is reasonable and does not exceed the amount that
would be paid for similar services in an arm's length transaction
between unrelated parties, thereby satisfying Section II(b) of PTE 79-
41. The Applicant also represents that no commissions are paid by the
Plan for the insurance coverage purchased from the HMO, thereby
satisfying Section II(c) of PTE 79-41. Finally, the Applicant states
that the total HMO premiums collected for participants in the Plan
(including employee and employer payments) have always, during the
period covered by this application, been less than 50% of total
premiums collected by the HMO. Therefore, the Applicant maintains that
the condition contained in Section II(d) of PTE 79-41 is satisfied.
4. Additional Protections
According to the Applicant, the HMO, as a licensed HMO in
California, employs an underwriter and contracts with an actuary to
calculate the appropriate premiums that it charges to employers who
purchase group HMO contracts from the HMO. According to the Applicant,
this analysis involves a study of industry trends and also the
particular demographics of the employer's workforce and, for a
continuing employer, such as Sharp, a review of the historic experience
that the HMO has had with the employer's population. Based on this
underwriting analysis, premiums are set for a contract year.\6\
---------------------------------------------------------------------------
\6\ The Applicant also notes that Sharp has historically paid a
majority of the Plan's premiums that are paid to the HMO and
employee contributions have always constituted less than half of the
cost of coverage.
---------------------------------------------------------------------------
In addition, the Applicant states that it also conducts its own
survey of premiums that are being paid for HMO coverage by other San
Diego area hospitals, using the services of third-party benefit
consultants to conduct these surveys.\7\ The Applicant explains that,
under these third party surveys, each of the large hospitals in San
Diego County are anonymously surveyed as to the COBRA rates they are
charging.\8\ The Applicant maintains that the premiums that have been
paid by Sharp to the HMO are within the market price paid by similarly
situated employers in San Diego County. Based on these two separate
methodologies, Sharp and its individual fiduciaries have concluded that
the amount the Plan pays to Sharp for HMO coverage is reasonable and
does not exceed the amount that would be paid for similar services in
an arm's length transaction between unrelated parties.
---------------------------------------------------------------------------
\7\ As stated above, Sharp has previously employed the firms of
Keenan and Associates and SDH Consultants to conduct these surveys.
\8\ Sharp officials believe that surveying COBRA premiums
charged by other large hospitals in the San Diego County area will
give an ``apples-to-apples'' comparison of premiums that are
actually being paid by employers with similar demographics to Sharp,
since, under COBRA, the ``applicable premium'' is the cost or 102%
of the cost actually paid by the employer for such coverage.
---------------------------------------------------------------------------
The Applicant notes that Sharp will continue with these efforts,
going forward, and will commit to hiring an independent third-party
consultant each year to issue a formal report. According to the
Applicant, the consultant will determine whether the amount employees
and/or their dependents pay for coverage is reasonable and does not
exceed the amount that would have been paid for similar services in an
arm's length transaction between unrelated parties. This amount will
include the cost of co-payments and other out-of-pocket expenses for
such coverage borne by participants and/or their dependents, and copies
of the certification will be distributed to Plan participants along
with summaries of health care costs for similar, competing health care
providers.
The Applicant states that if the proposed exemption is granted, the
Board of Directors of Sharp will appoint a committee (the Plan
Committee) consisting of the Senior Vice President and General Counsel,
the Senior Vice President and Chief Financial Officer, and the Vice
President, Compensation and Benefits, and such other representatives as
the Board may deem appropriate, which will annually ascertain and
certify in writing that the above requirements of this proposed
exemption, if granted, continue to be met.
5. Merits of the Covered Transactions
The Applicant states that the covered transactions are in the
interest of the Plan and its participants and beneficiaries. The
Applicant maintains that the covered transactions allow the Plan to
provide quality medical coverage to its participants at a lower price
and in a manner that harmonizes with the business practices of
employers who are in the insurance and health care industry. Sharp
maintains that participants in the Plan pay for less than half of the
Plan's cost for coverage under the HMO and by electing coverage under
the HMO, participants have access to a wide range of high quality Sharp
and non-Sharp affiliated health care providers.\9\ Furthermore, if the
exemption is denied, the Applicant maintains that the Plan and its
participants and beneficiaries will lose their coverage under the HMO
and will no longer be able to use Sharp providers, creating a hardship
for the many Sharp employees who have demonstrated a preference for
being treated in Sharp's health care system.
---------------------------------------------------------------------------
\9\ The Applicant notes that Plan participants in the HMO are
able to select any health care provider in the HMO's network,
regardless of whether they are affiliated with Sharp, but in an HMO
(rather than a Preferred Provider Organization) participants are not
allowed to select health care providers outside the HMO's network,
except in case of emergency.
---------------------------------------------------------------------------
The Applicant represents that the savings garnered from the HMO's
efficiencies of scale, and the lack of need for commissions, redounds
to the benefit of Plan participants. In this regard, the Applicant
explains that there
[[Page 52065]]
is no need to retain a broker and pay a commission for the retention of
the Plan's HMO coverage. Additionally, since the HMO also covers the
health plans of other employers, Sharp is able to achieve economies of
scale on its risk, claims processing, administration and health care
provider capitation costs that further drive down the overall cost of
Plan medical benefits for employees under the Plan.
Moreover, the Applicant represents that an exemption, if granted,
would be administratively feasible because the covered transactions are
standard for employers who are in the insurance and health care
industry. The Applicant also observes that, because the HMO is a fully
licensed HMO carrier whose claims processing activities are subject to
regulation and periodic review by the California Department of Managed
Health Care, no third party audit of its claims processing is
necessary.\10\ Finally, the Applicant states that Sharp has complied
with, and will continue to comply with the conditions of PTE 79-41
(with the exception of the affiliation requirement).
---------------------------------------------------------------------------
\10\ The Applicant notes that the Department of Managed Health
Care also reviews and approves all HMO provisions for compliance
with its rules and regulations.
---------------------------------------------------------------------------
Notice to Interested Persons
Notice of the proposed exemption will be provided to all interested
persons in the manner agreed upon by the Applicant and the Department
within 3 days of the date of publication in the Federal Register. Such
notice will contain a copy of the notice of proposed exemption, as
published in the Federal Register, and a supplemental statement, as
required pursuant to 29 CFR 2570.43(b)(2). The supplemental statement
will inform interested persons of their right to comment on and to
request a hearing with respect to the pending exemption. Written
comments and hearing requests are due within 33 days of the publication
of the notice of proposed exemption in the Federal Register.
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of ERISA does not relieve a fiduciary or other
party in interest from certain other provisions of ERISA, including any
prohibited transaction provisions to which the exemption does not apply
and the general fiduciary responsibility provisions of section 404 of
ERISA, which, among other things, require a fiduciary to discharge his
duties respecting the plan solely in the interest of the participants
and beneficiaries of the plan and in a prudent fashion in accordance
with section 404(a)(1)(b) of ERISA;
(2) Before an exemption may be granted under section 408(a) of
ERISA, the Department must find that the exemption is administratively
feasible, in the interests of the plan and of its participants and
beneficiaries, and protective of the rights of participants and
beneficiaries of the plan;
(3) The proposed exemption, if granted, will be supplemental to,
and not in derogation of, any other provisions of ERISA, including
statutory or administrative exemptions and transitional rules.
Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(4) The proposed exemption, if granted, will be subject to the
express condition that the material facts and representations contained
in the application are true and complete, and that the application
accurately describes all material terms of the transaction which is the
subject of the proposed exemption.
Proposed Exemption
Based on the facts and representations set forth in the
application, the Department is considering granting the requested
exemption under the authority of section 408(a) of the Act and in
accordance with the procedures set forth in 29 CFR Part 2570, Subpart B
(55 FR 32836, 32847, August 10, 1990), as follows:
Section I. Covered Transactions
A. If the proposed exemption is granted, the restrictions of
sections 406(a)(1)(A), 406(a)(1)(D), 406(b)(1), and 406(b)(2) of the
Act shall not apply, effective August 1, 2006 through and until the
date of publication in the Federal Register of a final grant of
exemption, to the purchase of health insurance by the Sharp HealthCare
Health and Dental Plan (the Plan) from the Sharp Health Plan (the HMO),
provided that the conditions of Section II have been met.
B. If the proposed exemption is granted, the restrictions of
sections 406(a)(1)(A), 406(a)(1)(D), 406(b)(1), and 406(b)(2) of the
Act shall not apply, effective as of the date of publication in the
Federal Register of a final grant of exemption, to the purchase of
health insurance by the Plan from the HMO, provided that the conditions
of Section II and Section III are met.
Section II. General Conditions
(a) Sharp is the sole member of the HMO, and more than 50% of the
appointment power for the HMO's Board of Directors is held by Sharp.
(b) Sharp is licensed to sell HMO coverage in the State of
California.
(c) The HMO is certified by the California Department of Managed
Health Care as being in compliance with the requirements for a licensed
HMO within the last 18 months.
(d) The HMO has undergone a financial examination by the California
Department of Managed Health Care within the past 5 years and will
continue to undergo such financial examinations at least once every
five years.
(e) The HMO has been, and will continue to be, examined by an
independent certified public accountant annually.
(f) The amount the Plan pays to Sharp for HMO coverage is
reasonable and does not exceed the amount the Plan would have paid for
similar services in an arm's length transaction between unrelated
parties.
(g) All HMO-offered health care providers meet all applicable
licensure requirements and certifications.
(h) The HMO offers a sufficient number of non-Sharp affiliated
health care providers to effectively allow Plan participants the
opportunity to receive health care services from either Sharp or non-
Sharp affiliated health care providers.
(i) No commissions are paid by the Plan with respect to the sale of
HMO coverage.
(j)(i) With respect to the relief provided in section I. A., for
each taxable year of the HMO, the gross premiums received in that
taxable year by the HMO from the Plan did not exceed 50% of the gross
premiums received by the HMO for all HMO coverage issued in that
taxable year; or (ii) with respect to the relief provided in section I.
B., for each taxable year of the HMO, the gross premiums received in
that taxable year by the HMO from the Plan will not exceed 50% of the
gross premiums received by the HMO for all HMO coverage issued in that
taxable year.
(k) Sharp maintains or causes to be maintained for a period of six
years from the date of any covered transaction hereunder such records
as are necessary to enable the persons described in paragraph (l)(i)
below to determine whether the conditions of this proposed exemption,
if granted, have been met, provided that (i) a separate prohibited
transaction will not be considered to
[[Page 52066]]
have occurred if, due to circumstances beyond the control of Sharp, the
records are lost or destroyed prior to the end of the six-year period,
and (ii) no party in interest other than Sharp shall be subject to a
civil penalty that may be assessed under section 502(i) of the Act, if
such records are not maintained, or are not available for examination
as required by paragraph (l)(i) below.
(l)(i) Except as provided below in paragraph (l)(ii), and
notwithstanding any provisions of subsections (a)(2) and (b) of section
504 of the Act, the records referred to above in paragraph (k) are
unconditionally available at their customary location for examination
during normal business hours by:
(A) Any duly authorized employee or representative of the
Department,
(B) Any duly authorized representative of the California Department
of Managed Health Care or any State or Federal governmental body
responsible for regulatory oversight of Sharp or the HMO, and
(C) Any fiduciary of the Plan or the Plan's authorized
representative; and
(ii) None of the persons described above in paragraph (l)(i)(C)
shall be authorized to examine trade secrets of Sharp, or commercial or
financial information which is privileged or confidential, and should
Sharp refuse to disclose information on the basis that such information
is exempt from disclosure, Sharp shall, by the close of the thirtieth
(30th) day following the request, provide a written notice advising
that person of the reasons for the refusal and that the Department may
request such information.
Section III. Prospective Conditions
(a) Sharp retains annually the services of an independent third-
party consultant to determine whether the amount employees and/or their
dependents pay for coverage is reasonable and does not exceed the
amount that would be paid for similar services in an arm's length
transaction between unrelated parties, which amount includes the cost
of co-payments and other out-of-pocket expenses for such coverage borne
by participants and/or their dependents, and written copies of such
determination are distributed to Plan participants along with summaries
of health care costs for similar, competing health care providers.
(b) The Board of Directors of Sharp appoints a committee (the Plan
Committee) consisting of the Senior Vice President and General Counsel,
the Senior Vice President and Chief Financial Officer, the Vice
President, Compensation and Benefits, and such other representatives as
the Board of Directors may deem appropriate. The Plan Committee will
annually ascertain and certify in writing that the above requirements
of this proposed exemption, if granted, continue to be met.
Signed at Washington, DC, this 17th day of August, 2012.
Lyssa E. Hall,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. 2012-21158 Filed 8-27-12; 8:45 am]
BILLING CODE 4510-29-P