---
kind: "section"
citation: "42 U.S.C. § 1395w–25"
title: "42"
title_heading: "The Public Health and Welfare"
number: "1395w–25"
heading: "Organizational and financial requirements for Medicare+Choice organizations; provider-sponsored organizations"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/42/1395w-25"
units:
  - "Chapter 7 — Social Security"
  - "Subchapter XVIII — Health Insurance for Aged and Disabled"
  - "Part C — Medicare+Choice Program"
---

# §1395w–25. Organizational and financial requirements for Medicare+Choice organizations; provider-sponsored organizations

- (a) **Organized and licensed under State law—**
  - (1) **In general—** Subject to paragraphs [(2)](#a-2) and [(3)](#a-3), a [Medicare+Choice organization](/usc/42/1395w–28.md?p=a-1) shall be organized and licensed under [State](/usc/42/619.md?p=5) law as a risk-bearing entity eligible to offer health insurance or health benefits coverage in each [State](/usc/42/619.md?p=5) in which it offers a [Medicare+Choice plan](/usc/42/1395w–28.md?p=b-1).
  - (2) **Special exception for provider-sponsored organizations—**
    - (A) **In general—** In the case of a [provider-sponsored organization](/usc/42/1395w–28.md?p=a-2) that seeks to offer a [Medicare+Choice plan](/usc/42/1395w–28.md?p=b-1) in a [State](/usc/42/619.md?p=5), the [Secretary](/usc/42/1301.md?p=a-6) shall waive the requirement of [paragraph (1)](#a-1) that the organization be licensed in that [State](/usc/42/619.md?p=5) if—
      - (i) the organization files an application for such waiver with the [Secretary](/usc/42/1301.md?p=a-6) by not later than November 1, 2002, and
      - (ii) the [Secretary](/usc/42/1301.md?p=a-6) determines, based on the application and other evidence presented to the [Secretary](/usc/42/1301.md?p=a-6), that any of the grounds for approval of the application described in subparagraph [(B)](#a-2-B), [(C)](#a-2-C), or [(D)](#a-2-D) has been met.
    - (B) **Failure to act on licensure application on a timely basis—** The ground for approval of such a waiver application described in this subparagraph is that the [State](/usc/42/619.md?p=5) has failed to complete action on a licensing application of the organization within 90 days of the date of the [State](/usc/42/619.md?p=5)’s receipt of a substantially complete application. No period before August 5, 1997, shall be included in determining such 90-day period.
    - (C) **Denial of application based on discriminatory treatment—** The ground for approval of such a waiver application described in this subparagraph is that the [State](/usc/42/619.md?p=5) has denied such a licensing application and—
      - (i) the [standards](/usc/42/1320d.md?p=7) or review process imposed by the [State](/usc/42/619.md?p=5) as a condition of approval of the license imposes any material requirements, procedures, or [standards](/usc/42/1320d.md?p=7) (other than solvency requirements) to such organizations that are not generally applicable to other entities engaged in a substantially similar business, or
      - (ii) the [State](/usc/42/619.md?p=5) requires the organization, as a condition of licensure, to offer any product or plan other than a Medicare+ÐChoice plan.
    - (D) **Denial of application based on application of solvency requirements—** With respect to waiver applications filed on or after the date of publication of solvency [standards](/usc/42/1320d.md?p=7) under [section 1395w–26(a) of this title](/usc/42/1395w–26.md?p=a), the ground for approval of such a waiver application described in this subparagraph is that the [State](/usc/42/619.md?p=5) has denied such a licensing application based (in whole or in part) on the organization’s failure to meet applicable solvency requirements and—
      - (i) such requirements are not the same as the solvency [standards](/usc/42/1320d.md?p=7) established under [section 1395w–26(a) of this title](/usc/42/1395w–26.md?p=a); or
      - (ii) the [State](/usc/42/619.md?p=5) has imposed as a condition of approval of the license documentation or information requirements relating to solvency or other material requirements, procedures, or [standards](/usc/42/1320d.md?p=7) relating to solvency that are different from the requirements, procedures, and [standards](/usc/42/1320d.md?p=7) applied by the [Secretary](/usc/42/1301.md?p=a-6) under [subsection (d)(2)](#d-2).

      For purposes of this paragraph, the term “solvency requirements” means requirements relating to solvency and other matters covered under the [standards](/usc/42/1320d.md?p=7) established under [section 1395w–26(a) of this title](/usc/42/1395w–26.md?p=a).

    - (E) **Treatment of waiver—** In the case of a waiver granted under this paragraph for a [provider-sponsored organization](/usc/42/1395w–28.md?p=a-2) with respect to a [State](/usc/42/619.md?p=5)—
      - (i) **Limitation to State—** The waiver shall be effective only with respect to that [State](/usc/42/619.md?p=5) and does not apply to any other [State](/usc/42/619.md?p=5).
      - (ii) **Limitation to 36-month period—** The waiver shall be effective only for a 36-month period and may not be renewed.
      - (iii) **Conditioned on compliance with consumer protection and quality standards—** The continuation of the waiver is conditioned upon the organization’s compliance with the requirements described in [subparagraph (G)](#a-2-G).
      - (iv) **Preemption of State law—** Any provisions of law of that [State](/usc/42/619.md?p=5) which relate to the licensing of the organization and which prohibit the organization from providing coverage pursuant to a contract under this part shall be superseded.
    - (F) **Prompt action on application—** The [Secretary](/usc/42/1301.md?p=a-6) shall [grant](/usc/42/1397j.md?p=10) or deny such a waiver application within 60 days after the date the [Secretary](/usc/42/1301.md?p=a-6) determines that a substantially complete waiver application has been filed. Nothing in this section shall be construed as preventing an organization which has had such a waiver application denied from submitting a subsequent waiver application.
    - (G) **Application and enforcement of State consumer protection and quality standards—**
      - (i) **In general—** A waiver granted under this paragraph to an organization with respect to licensing under [State](/usc/42/619.md?p=5) law is conditioned upon the organization’s compliance with all consumer protection and quality [standards](/usc/42/1320d.md?p=7) insofar as such [standards](/usc/42/1320d.md?p=7)—
        - (I) would apply in the [State](/usc/42/619.md?p=5) to the organization if it were licensed under [State](/usc/42/619.md?p=5) law;
        - (II) are generally applicable to other [Medicare+Choice organizations](/usc/42/1395w–28.md?p=a-1) and plans in the [State](/usc/42/619.md?p=5); and
        - (III) are consistent with the [standards](/usc/42/1320d.md?p=7) established under this part.

      Such [standards](/usc/42/1320d.md?p=7) shall not include any [standard](/usc/42/1320d.md?p=7) preempted under [section 1395w–26(b)(3)(B) of this title](/usc/42/1395w–26.md).

      - (ii) **Incorporation into contract—** In the case of such a waiver granted to an organization with respect to a [State](/usc/42/619.md?p=5), the [Secretary](/usc/42/1301.md?p=a-6) shall incorporate the requirement that the organization (and [Medicare+Choice plans](/usc/42/1395w–28.md?p=b-1) it offers) comply with [standards](/usc/42/1320d.md?p=7) under [clause (i)](#a-2-G-i) as part of the contract between the [Secretary](/usc/42/1301.md?p=a-6) and the organization under [section 1395w–27 of this title](/usc/42/1395w–27.md).
      - (iii) **Enforcement—** In the case of such a waiver granted to an organization with respect to a [State](/usc/42/619.md?p=5), the [Secretary](/usc/42/1301.md?p=a-6) may enter into an agreement with the [State](/usc/42/619.md?p=5) under which the [State](/usc/42/619.md?p=5) agrees to provide for monitoring and enforcement activities with respect to compliance of such an organization and its [Medicare+Choice plans](/usc/42/1395w–28.md?p=b-1) with such [standards](/usc/42/1320d.md?p=7). Such monitoring and enforcement shall be conducted by the [State](/usc/42/619.md?p=5) in the same manner as the [State](/usc/42/619.md?p=5) enforces such [standards](/usc/42/1320d.md?p=7) with respect to other [Medicare+Choice organizations](/usc/42/1395w–28.md?p=a-1) and plans, without discrimination based on the type of organization to which the [standards](/usc/42/1320d.md?p=7) apply. Such an agreement shall specify or establish mechanisms by which compliance activities are undertaken, while not lengthening the time required to review and process applications for waivers under this paragraph.
    - (H) **Report—** By not later than December 31, 2001, the [Secretary](/usc/42/1301.md?p=a-6) shall submit to the Committee on Ways and Means and the Committee on Commerce of the House of Representatives and the Committee on Finance of the Senate a report regarding whether the waiver process under this paragraph should be continued after December 31, 2002. In making such recommendation, the [Secretary](/usc/42/1301.md?p=a-6) shall consider, among other factors, the impact of such process on beneficiaries and on the long-term solvency of the program under this subchapter.
  - (3) **Licensure does not substitute for or constitute certification—** The fact that an organization is licensed in accordance with [paragraph (1)](#a-1) does not deem the organization to meet other requirements imposed under this part.
- (b) **Assumption of full financial risk—** The [Medicare+Choice organization](/usc/42/1395w–28.md?p=a-1) shall assume full financial risk on a prospective basis for the provision of the health care services for which benefits are required to be provided under [section 1395w–22(a)(1) of this title](/usc/42/1395w–22.md?p=a-1), except that the organization—
  - (1) may obtain insurance or make other arrangements for the cost of providing to any enrolled member such services the aggregate value of which exceeds such aggregate level as the [Secretary](/usc/42/1301.md?p=a-6) specifies from time to time,
  - (2) may obtain insurance or make other arrangements for the cost of such services provided to its enrolled members other than through the organization because medical necessity required their provision before they could be secured through the organization,
  - (3) may obtain insurance or make other arrangements for not more than 90 percent of the amount by which its costs for any of its [fiscal years](/usc/42/619.md?p=3) exceed 115 percent of its income for such [fiscal year](/usc/42/619.md?p=3), and
  - (4) may make arrangements with [physicians](/usc/42/1301.md?p=a-7) or other health care professionals, health care institutions, or any combination of such individuals or institutions to assume all or part of the financial risk on a prospective basis for the provision of basic health services by the [physicians](/usc/42/1301.md?p=a-7) or other health professionals or through the institutions.
- (c) **Certification of provision against risk of insolvency for unlicensed PSOs—**
  - (1) **In general—** Each [Medicare+Choice organization](/usc/42/1395w–28.md?p=a-1) that is a [provider-sponsored organization](/usc/42/1395w–28.md?p=a-2), that is not licensed by a [State](/usc/42/619.md?p=5) under [subsection (a)](#a), and for which a waiver application has been approved under [subsection (a)(2)](#a-2), shall meet [standards](/usc/42/1320d.md?p=7) established under [section 1395w–26(a) of this title](/usc/42/1395w–26.md?p=a) relating to the financial solvency and capital adequacy of the organization.
  - (2) **Certification process for solvency standards for PSOs—** The [Secretary](/usc/42/1301.md?p=a-6) shall establish a process for the receipt and approval of applications of a [provider-sponsored organization](/usc/42/1395w–28.md?p=a-2) described in [paragraph (1)](#c-1) for certification (and periodic recertification) of the organization as meeting such solvency [standards](/usc/42/1320d.md?p=7). Under such process, the [Secretary](/usc/42/1301.md?p=a-6) shall act upon such a certification application not later than 60 days after the date the application has been received.
- (d) **“Provider-sponsored organization” defined—**
  - (1) **In general—** In this part, the term “[provider-sponsored organization](/usc/42/1395w–28.md?p=a-2)” means a public or private entity—
    - (A) that is established or organized, and operated, by a [health care provider](/usc/42/1320d.md?p=3), or group of affiliated [health care providers](/usc/42/1320d.md?p=3),
    - (B) that provides a substantial proportion (as defined by the [Secretary](/usc/42/1301.md?p=a-6) in accordance with [paragraph (2)](#d-2)) of the health care items and services under the contract under this part directly through the provider or affiliated group of providers, and
    - (C) with respect to which the affiliated providers share, directly or indirectly, substantial financial risk with respect to the provision of such items and services and have at least a majority financial interest in the entity.
  - (2) **Substantial proportion—** In defining what is a “substantial proportion” for purposes of [paragraph (1)(B)](#d-1-B), the [Secretary](/usc/42/1301.md?p=a-6)—
    - (A) shall take into account the need for such an organization to assume responsibility for providing—
      - (i) significantly more than the majority of the items and services under the contract under this section through its own affiliated providers; and
      - (ii) most of the remainder of the items and services under the contract through providers with which the organization has an agreement to provide such items and services,

      in order to assure financial stability and to address the practical considerations involved in integrating the delivery of a wide range of service providers;

    - (B) shall take into account the need for such an organization to provide a limited proportion of the items and services under the contract through providers that are neither affiliated with nor have an agreement with the organization; and
    - (C) may allow for variation in the definition of substantial proportion among such organizations based on relevant differences among the organizations, such as their location in an urban or rural area.
  - (3) **Affiliation—** For purposes of this subsection, a provider is “affiliated” with another provider if, through contract, ownership, or otherwise—
    - (A) one provider, directly or indirectly, controls, is controlled by, or is under common control with the other,
    - (B) both providers are part of a controlled group of [corporations](/usc/42/1301.md?p=a-4) under section 1563 of the Internal Revenue Code of 1986,
    - (C) each provider is a participant in a lawful combination under which each provider shares substantial financial risk in connection with the organization’s operations, or
    - (D) both providers are part of an affiliated service group under [section 414](/usc/42/414.md) of such Code.
  - (4) **Control—** For purposes of [paragraph (3)](#d-3), control is presumed to exist if one party, directly or indirectly, owns, controls, or holds the power to vote, or proxies for, not less than 51 percent of the voting rights or governance rights of another.
  - (5) **“Health care provider” defined—** In this subsection, the term “[health care provider](/usc/42/1320d.md?p=3)” means—
    - (A) any individual who is engaged in the delivery of health care services in a [State](/usc/42/619.md?p=5) and who is required by [State](/usc/42/619.md?p=5) law or regulation to be licensed or certified by the [State](/usc/42/619.md?p=5) to engage in the delivery of such services in the [State](/usc/42/619.md?p=5), and
    - (B) any entity that is engaged in the delivery of health care services in a [State](/usc/42/619.md?p=5) and that, if it is required by [State](/usc/42/619.md?p=5) law or regulation to be licensed or certified by the [State](/usc/42/619.md?p=5) to engage in the delivery of such services in the [State](/usc/42/619.md?p=5), is so licensed.
  - (6) **Regulations—** The [Secretary](/usc/42/1301.md?p=a-6) shall issue regulations to carry out this subsection.

## Source credit

(Aug. 14, 1935, ch. 531, title XVIII, § 1855, as added Pub. L. 105–33, title IV, § 4001, Aug. 5, 1997, 111 Stat. 312.)

## Notes

### Editorial Notes

### References in Text

The Internal Revenue Code of 1986, referred to in subsec. (d)(3)(B), (D), is classified generally to Title 26, Internal Revenue Code.

### Statutory Notes and Related Subsidiaries

### Change of Name

References to Medicare+Choice deemed to refer to Medicare Advantage or MA, subject to an appropriate transition provided by the Secretary of Health and Human Services in the use of those terms, see section 201 of Pub. L. 108–173, set out as a note under section 1395w–21 of this title.

Committee on Commerce of House of Representatives changed to Committee on Energy and Commerce of House of Representatives, and jurisdiction over matters relating to securities and exchanges and insurance generally transferred to Committee on Financial Services of House of Representatives by House Resolution No. 5, One Hundred Seventh Congress, Jan. 3, 2001.