(a) No contract between the department and a prepaid health plan shall be approved or renewed unless the providers and the facilities of the prepaid health plan meet the Medi-Cal program standards for participation as established by the director. In addition, a prepaid health plan shall meet the standards required pursuant to the provisions of the Knox-Keene Health Care Service Plan Act of 1975 (Chapter 2.2 (commencing with Section 1340) of Division 2 of the Health and Safety Code), or the provisions of Chapter 11A (commencing with Section 11491) of Part 2 of Division 2 of the Insurance Code, as appropriate, standards specifically required by federal law, and the following requirements:

(1) Each prepaid health plan shall establish a grievance procedure under which enrollees may submit their grievances. The procedure shall be approved by the department prior to the approval of the contract. The department shall establish standards for the procedures to insure adequate consideration and rectification of enrollee grievances. A prepaid health plan shall make a finding of fact in the case of each grievance processed, a copy of which shall be transmitted to the enrollee. If the enrollee has an unresolved grievance, the fair hearing provided in Chapter 7 (commencing with Section 10950) of Part 2 shall be available to resolve all grievances regarding care and administration by the prepaid health plan. The findings and recommendations of the department, based on the decision of the hearing officer, shall be binding upon the prepaid health plan. Any changes in a proposed health plan’s grievance procedure must be approved by the department before the changes take effect.

(2) (A) Medi-Cal enrollees shall have the same responsibilities and shall be entitled to the same rights as other enrollees with regard to any requirements for arbitration as a condition of membership in a health plan.

(B) Arbitration requirements shall be clearly disclosed in all of the contractor’s Medi-Cal marketing presentations, materials and brochures, enrollment agreements, evidence of coverage, and disclosure forms.

(3) The prepaid health plan shall provide the director, for his or her approval, a plan for marketing its services to Medi-Cal beneficiaries which relates the proposed service to the need for services, and the size of the potential population to be served in the proposed service area.

(4) The prepaid health plan shall demonstrate to the department that it has adequate financial resources, administrative abilities and soundness of program design to carry out its contractual obligations.

(b) The requirements of this section shall apply to all managed care plan contracts entered into under any of the following:

(1) The act that added this subdivision.

(2) Any of the following provisions of Chapter 7 (commencing with Section 14000).

(A) Article 2.7 (commencing with Section 14087.3).

(B) Article 2.9 (commencing with Section 14088).

(C) Article 2.91 (commencing with Section 14490).

(3) Article 7 of Chapter 8 (commencing with Section 14490).

(Amended by Stats. 1991, Ch. 95, Sec. 13. Effective June 30, 1991.)