(a) In addition to the general by-law requirements set forth herein for health organizations seeking certification under §162.001(b) of the Act, any health organization in which a member is either a person who is not a physician actively engaged in the practice of medicine or an entity or organization that is not wholly owned and controlled by physicians actively engaged in the practice of medicine must comply with the following requirement:
  (1) All credentialing, quality assurance, utilization review and peer review policies shall be made exclusively by the board of directors; however, following consultation with the board of directors, the member(s) may retain the right to approve, or in the case of a health organization seeking to obtain or maintain tax exempt status the right to make, any financial decision of the health organization including, but not limited to, decisions regarding capital and operating budgets, physician compensation and benefits, expenditures of monies, and managed care contracts in which the health organization is at financial risk, the substance of which requirements shall be provided for in the by-laws of the health organization.
  (2) Subsequent to the appointment of the initial board of directors, a member may not appoint or elect any director without the approval of at least a majority of the board of directors unless required by law including requirements to obtain or maintain tax exemption.
  (3) Without the approval of at least a majority of the board of directors, the member may not unilaterally amend the bylaws of the health organization unless required by law including requirements to obtain or maintain tax exemption.
(b) The board of directors for the organization must develop policies and the organization must adopt, maintain, and enforce policies to ensure that physicians employed by the organization exercise independent medical judgment when providing care to patients. The policies must include policies relating to:
  (1) credentialing and privileging;
  (2) quality assurance;
  (3) utilization review; and
  (4) peer review.
(c) A health organization may not interfere with, control, or otherwise direct a physician's professional judgment in violation of the Act, Board rules, or any other provision of law. The health organization's policies must reserve the sole authority to engage in the practice of medicine to a physician participating in the health organization, regardless of the physician's employment status with the health organization. A physician retains independent medical judgment and discretion in providing and supervising care to patients. A health organization may not discipline a physician for reasonably advocating for patient care.
(d) The requirements set out in Texas Occupations Code, Chapter 162, Subchapter A, may not be voided or waived by contract. However, a member of a health organization may establish ethical and religious directives and a physician may contractually agree to comply with those directives.

Source Note: The provisions of this §177.5 adopted to be effective January 12, 1996, 21 TexReg 107; amended to be effective July 4, 2004, 29 TexReg 6089; amended to be effective July 4, 2012, 37 TexReg 4928