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Prompt-pay laws are finally getting teeth


Statutes haven't done the job. So now state regulators are getting tough with the insurance tortoise, trying to turn him into Turbo Turtle.


Prompt-pay laws are finally getting teeth

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Choose article section... Regulators use fines to get HMOs' attention Florida establishes review panels for resolving payment disputes States struggle to define a clean claim

Statutes haven't done the job. So now state regulators are getting tough with the insurance tortoise, trying to turn him into Turbo Turtle.

By Wayne J. Guglielmo
Senior Editor

In early 1999, Georgia passed one of the toughest prompt-pay laws in the nation.

The legislation, which amended a weaker existing statute, requires health plans to pay undisputed physician claims within 15 working days or face an 18 percent interest penalty. The new law should have reassured Georgia doctors frustrated by a pattern of late payments.

But when regulators eager to know how the law was working ordered plans to submit third-quarter claims data later in the year, the review proved disturbing. "Few if any plans were in compliance with the statute," says David Crim, deputy commissioner of the Georgia department of insurance.

Georgians aren't the only ones to discover that prompt-pay laws are no guarantee that the check's in the mail. Indeed, despite the existence of such laws in 40 states, AMA-designed surveys by state and local medical societies have documented widespread discontent among physicians. According to the AMA, 38 percent of the physician practices surveyed said that it takes more than 45 days on average to be paid for a clean claim. In the worst cases, physicians report average payment delays of nearly one year.

The managed care industry dismisses these findings, saying that the vast majority of clean claims are paid promptly. And to the extent there are delays, industry officials say, there are "sometimes good reasons" for them. "A plan serving 1.6 million members probably processes 1 million claims per month," says Susan Pisano of the Washington, DC-based American Association of Health Plans. Add to these "sheer numbers" the time it takes to review for fraud, the ambiguity over what constitutes a clean claim, and the bumpy transition to electronic filing, says Pisano, and the delays become more understandable.

Many physicians aren't convinced: They believe the delays are intentional, and some even charge plans with holding up payments in order to earn additional interest on invested funds.

Whatever the exact causes of the problem, states are under pressure from provider groups and others to add muscle to their prompt-pay laws. Measures range from fines and lawsuits, to tweaking existing laws, to creating dispute-resolution mechanisms. Here's what's going on around the country—and whether the tougher measures will help you.

Regulators use fines to get HMOs' attention

Following its eye-opening review of claims data in late 1999, the Georgia department of insurance, under the leadership of Commissioner John W. Oxendine, brought providers and plans together to address the payment problem. Charges and countercharges flew across the table. Physicians reiterated their accusation that plans intentionally delayed payments in order to profit from the "float"; plans accused doctors of submitting incomplete and inaccurate claims. The industry also complained that Georgia's 15-day turnaround period was too onerous.

The commissioner moved on another front, as well. Based on the department's data review, he began imposing a series of fines on health plans caught flouting the law. The fines began in 1999 and accelerated in 2000. On Feb. 9, he fined United HealthCare in Georgia $123,000, primarily for dragging its heels on claims payments. The following month, he imposed more than double that amount on Coventry HealthCare of Georgia (formerly Principal Health Care of Georgia) for a similar offense. (The fine was later reduced to around $200,000.) And in May, he fined Prudential HealthCare Plan of Georgia nearly $200,000.

Pediatrician Martin Moran of Sandy Springs, GA, thinks the fines have helped speed things up, especially with smaller claims, but insists there's still a problem. "I'm not sure a fine of $150,000 or so means a whole lot to an HMO that's part of a billion-dollar industry," says Moran, who last year joined the Medical Association of Georgia and the AMA in separate suits against Aetna US Healthcare and three other plans for prompt-pay violations.

Still, plans that continue to pay slowly despite the fines, suits, and face-to-face attempts to work things out can expect scrutiny and fines in the future, according to Deputy Commissioner Crim. He believes the word is spreading that Georgia regulators are serious about enforcing the law.

New York is another state that's used fines to add muscle to an existing prompt-pay law. In 1997, lawmakers there passed legislation that ordered insurers to pay undisputed claims and bills within 45 days of receipt. HMOs and insurance companies that failed to meet this timetable would be required to pay interest on the unpaid claim.

But a year after the law took effect, regulators discovered it was honored more in the breach than the observance. On Jan. 11, 1999, New York Superintendent of Insurance Neil D. Levin imposed the first in a series of fines against companies that failed to obey the law.

The fines themselves were minor (Oxford topped the list at $40,900), but Levin also issued a warning: "The industry can expect the frequency and level of fines to increase until all companies are in compliance with the law." True to his word, he imposed a second and slightly higher round of fines three months later, announcing that more than half the companies listed were "second-time offenders."

Last July, Levin increased the stakes with a $500,000 fine on HealthNow New York, an insurer operating as Blue Cross and Blue Shield of Western New York and Blue Shield of Northeastern New York. Among other things, the superintendent charged HealthNow with "systematically underpaying claims for physician outpatient psychiatric services," for violating the state's prompt-pay law, and for "failing to pay interest on the late payments as required under the statute." The insurer—which is currently being monitored by regulators—agreed not to pass on the costs of its fines to policyholders by raising premiums.

In mid-October, Levin fined 21 other insurers a total of $575,000, plus interest payments on unpaid claims.

"We're pleased with the level of enforcement," says medical society spokesman Michael S. Murphy. But like others in organized medicine, Murphy isn't convinced that fines are "enough of a deterrent to enjoin the HMO to pay promptly." As he says: "Some of the larger HMOs actually think of these fines as part of their cost of doing business."

New York's managed care industry is currently challenging the superintendent on his interpretation of the law. In a suit filed last September, the New York Health Plan Association argued that Levin overstepped his authority when he said that HMOs would be held responsible for "outside entities that process claims on behalf of the company." Since entities aren't subject to the state's prompt-pay law, the suit argues, HMOs that do business with them can't be held responsible for their alleged violations. The state medical society—which contends that the superintendent does have the statutory authority to regulate HMOs in such matters—has filed a motion to join the state as a codefendant in the suit.

Florida establishes review panels for resolving payment disputes

Some states have developed less-punitive ways of adding clout to their prompt-pay statutes.

A law that took effect in Florida on Jan. 1, for example, allows doctors and HMOs to submit payment disputes to an external resolution panel. This idea grew out of a longstanding conviction among Florida physicians that HMOs were not only delaying claims but inappropriately downcoding them. "We've had a prompt-pay bill on the books for a number of years," says John Knight, general counsel of the Florida Medical Association. "But it was so watered down that it was worthless."

Doctors complained, but regulators believed they didn't have the expertise to referee disputes, especially when it came to physician complaints of downcoding. Instead, they convened all the interested parties and set about deciding how disputes could be resolved fairly.

Besides establishing an outside review entity, the new law also beefs up existing prompt-pay protections. For instance, an HMO can no longer retroactively deny authorized covered services, unless it determines within one year from the date of payment that the patient was not an eligible subscriber. Plans making this determination are prohibited from recovering their money by automatically withholding payments for other services. Nor can they automatically bill physicians for alleged overpayments. In both cases, plans must notify physicians of their intent. Whatever disputes arise must first work their way through the plan's internal review process before being appealed—by either the physician or the plan—to the external resolution panel.

Knight says it's too early to tell whether the new law is working, but he's alert to the possibility that plans may try "to get doctors to, in essence, contract away some of the rights the law has given them." Says Knight: "It's one of the things we may need to look at this legislative session."

As the result of a 1999 law, New Jersey will also establish an appeal process to resolve payment disputes. Based on regulations expected to be made final soon, the appeal will be heard by an internal review panel at the health plan. It is unclear at this point whether doctors will also have access to an external appeals panel. Garden State doctors have adopted a wait-and-see attitude. "If we find our doctors are appealing and repeatedly being shot down, we'll go back to the state," says orthopedic surgeon Irving P. Ratner, immediate past president of the Medical Society of New Jersey.

States struggle to define a clean claim

In addition to tackling payment delays through appeals mechanisms, fines, and suits, states have also begun to tighten statutory language defining a clean claim. Such tightening is long overdue, many observers on both sides of the payment issue say.

"Health plans that are chronically slow payers regularly raise disputes regarding whether or not claims are complete," says Boston attorney Lawrence W. Vernaglia. Insurers counter that many claims—estimates range as high as 50 percent—can't pass the white-glove test, and thus language clarifying what constitutes a clean claim is a good idea. To date, 12 states have made the attempt, according to the AMA. They are: Arizona, Colorado, Florida, Kansas, Kentucky, Minnesota, New Mexico, Pennsylvania, Tennessee, Texas, Virginia, and Washington. Other states, including New York, are likely to take up the issue this legislative session.

These laws can be very effective. Take, for example, a bill passed by the New Mexico legislature last session with the cooperation of the HMO industry. It defines a clean claim as one that contains "substantially" all the required information for the health plan to reach a decision, that is accompanied by all the required documentation, and that "has no particular or unusual circumstances" that would impede the plan from paying claims within the established time frames (30 and 45 days for electronic and manual claims, respectively).

"A year ago physicians were being paid in excess of 180 days," says New Mexico Medical Society Executive Director G. Randy Marshall. "And now, on average, they are getting paid within 14 to 25 days, so the law has greatly improved things."

Things have gone less well in Texas, at least as far as the Texas Medical Association sees it. Last summer, as a result of prompt-pay legislation passed in 1999, the Texas Department of Insurance announced rules relating to the submission of clean claims. The rules, modeled closely on HCFA's, listed the "essential data elements" of a clean claim and offered physicians a road map. But the rules also contained language that permitted health plans to add to the list of elements, provided they gave physicians a 60-day written notice or incorporated such additional requirements in physician contracts.

"We see a lot of carriers adding requirements, so it puts doctors back at square one," says Michael Cushman, director of the TMA's department of health care delivery. "A physician with 15 managed care contracts isn't sure who requires what." The TMA, Cushman says, will work to change some of the regulatory language this session.

In Texas, as in many other states, solving the prompt-pay issue is a work in progress, although efforts to toughen existing laws appear to be having an effect. Says Cushman: "In terms of getting the plans' attention, I think we're heading in the right direction."


Wayne Guglielmo. Prompt-pay laws are finally getting teeth. Medical Economics 2001;2:47.

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