ADMINISTRACION DE SEGUROS DE SALUD

ASES
June 10, 2011

ESTADO LIBRE ASOCIADO DE PUERTO RICO

CERTIFIED MAIL RETURN RECEIPT REQUESTED NOTICE OF REMEDIES Mr. Jose Durn President MCS-HMO, Inc. MCS Plaza, Suite 200 255 Ponce de Leon Ave. San Juan, PR 00917 Dear Mr. Durn: On April 6, 2011, the Puerto Rico Health Insurance Administration (ASES) issued a letter to your attention notifying that MCS-HMO has not complied with the requirement to contract at least seventy percent (70%) of the laboratories for the preferred network, in each of the regions covered in the Mi Salud Contract. Said letter also specified that MCS-HMO had until April 30, 2011 to comply with said requisite. To this date, MCS HMO has not submitted proof to ASES that it has complied with the requirement. Hence, it is in violation of the terms and conditions of Mi Salud Contract entered between ASES and MCS-HMO. ASES has met on a weekly basis with representatives of MCS-HMO to follow up on the implementation of The Mi Salud Program. Specifically, these meetings have addressed MCS-HMO contractual obligation to have in place general network, a preferred network of providers, and the appropriate providers that are part of the medical faculty of the contracted hospitals. Based on the information exchanged in our weekly meetings and after more than seven (7) months from the start of the Mi Salud Program, MCS-HMO has failed to complete the contracting of the preferred network of providers. In addition, MCS-HMO has failed to comply with the contracting of the medical faculty in the Hospitals contracted under the General and Preferred Network for Mi Salud. As of the date of the transition daily report submitted by MCS-HMO of May 31, 2011, in none of the contracted Service Regions MCS-HMO has contracted at least 70% of the laboratories of its General Network for its preferred network, has failed to contract

P0 Box 195661, San Juan, P.R. 00919-5661

Tel. (787) 474-3300

Fax (787) 474-3346

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the required ratio of X-Rays facilities in its preferred network and the hospital medical staff (faculty). Consequently, MCS-HMO has been in violation to the contract for the past 7 months. These repeated violations constitute a breach of contract. Due to the fact that the answers submitted by MCS-HMO were non-responsive and the proper corrective action has not been implemented, and that there is evidence in the administrative file that these violations occurred, ASES hereby notifies MCS-HMO of its intention to impose sanctions pursuant to Section 19.7 of Mi Salud Contract signed on October 15, 2010. ARTICLE 19 of the Mi Salud Agreement provides that if the Contractor, in this case MCS-HMO, is in default as to any term, condition or requirement of the Contract, ASES may impose liquidated damages against the contractor for each identified deficiency. ASES may impose liquidated damages for Category 1 events up to $100,000.00 per each determination of breach of contract under the following sections: 1. Non compliance with Section 9.5.2.1, 9.5.2.2 and 9.5.2.3, which states: The Contractor shall also ensure that the PPN, in addition to meeting the requirements set forth above, adheres to the following minimum Provider ratios: 9.5.2.1 9.5.2.2 9.5.2.3 Seventy percent (70%) of the X-ray facilities in each Service Region; Seventy percent (70%) of the clinical laboratories in each Service Region; and Two (2) hospitals in each Service Region.

2. Non compliance with Section 9.6.2.1: 9.6.2 9.6.2.1 Specialists and Other Providers For both the General Network and the PPN (except as specifically indicated below), the Contractor shall have available and under contract within each Service Region the following types of Network Providers: Hospitals; Other Health Care Professionals, provided they are duly licensed as required byASES; Specialized Service Providers; Any other Providers needed to offer services under Basic Coverage (except that Pharmacy Services are not included within the PPN) and Special Coverage, considering the specific health needs of the Service Region.

9.6.2.1.7 9.6.2.1.8 9.6.2.1.9 9.6.2.1.11

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According with the above mentioned violations, ASES has the intention to impose the following monetary penalties:

$100,000.00 per each region where required 70% of contracted clinical

MCS-HMO has not met the laboratories in the preferred provider networks. (Based on Section 9.5.2.2) (Total of proposed fine: $500,000.00, for North, Metro North, San Juan and Northeast and West Regions) $100,000.00 per each region where MCS-HMO has not met the required 70% of contracted X -rays facilities in the preferred provider networks. (Based on Section 9.5.2.1) (Total of proposed fine: $500,000.00, for North, Metro North, San Juan and Northeast and West Regions) $100,000.00 per each region where MCS-HMO has not contracted the necessary hospital medical staff (providers) as required under the contract to offer services under Basic Coverage and Special Coverage, considering the specific health needs of the Service Region. (Based on Section 9.6.2.1.11) (Total of proposed fine: $500,000.00, for North, Metro North, San Juan and Northeast and West Regions)

ASES, by means of this letter, is providing timely written notice to MCS-HMO, explaining: A. the nature of the violation, and B. the due process protection that the State elects to provide. Given the fact that MCS-HMO has received numerous notifications from ASES requesting a corrective action plan to address the multiple violations above identified and the fact that MCS-HMO has failed to comply, MCS-HMO is hereby informed that pursuant to Section 19.7.2, it has the right, within fifteen (15) calendar days of receipt from ASES of this letter, to appeal in writing any such remedy and show cause why ASES should not impose sanctions for the violations to the Contract entered between the parties. Within that period, MCS-HMO may request a meeting with ASES to discuss the violations and/or cure them. If any such appeal is filed by MCS-HMO, ASES may take any of the following actions: 1. Confirm the remedy; or

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2. Modify or amend the remedy; or 3. Eliminate the remedy, provided MCS-HMO has taken all necessary actions to correct any such deficiency or cure the failure that cause the remedy. If the sanctions are confirmed or otherwise modified, MCS-HMO has the right to Appeal ASESs decision as provided in Act No. 170 of August 12, 1988, as amended, known as Uniform Administrative Procedure Act. Any communication related to this Notification shall be addressed to: Mr. Frank Diaz Gins, MHSA Executive Director and Angel I. Reyes Rivera General Counsel Puerto Rico Health Insurance Administration P0 Box 195661 San Juan, PR 0091 9-5661 If you have any questions related to this Notice of Remedies, please contact the undersigned at 787.474.3300 ext. 2320.

Frank R. DIaz Gin Executive Director

c. Angel I. Reyes Rivera

SA