Hospitals and physicians in New York complained loudly when Oxford Health Plans, the Norwalk, Conn.-based managed-care company, fell deeply behind in paying provider claims earlier this year.
The payment lags, which Oxford blamed on computer glitches, bought the company some bad press and stiff new payment terms imposed under a settlement with state Attorney General Dennis Vacco. But Oxford isn't the only HMO guilty of fiscal foot-dragging, industry sources say. At some HMOs, payment terms are being stretched well beyond 60 days.
The New Jersey Hospital Association, for one, says more than a third of claims submitted to HMOs have either not been acted on within 45 days or have not been paid within 60 days.
"I would say it's an issue across the country," observes Chuck Lund, president of Zimmerman & Associates, a Hales Corners, Wis.-based consulting firm that specializes in receivables management. And it's one hospitals are focused on like never before. Lund says cash management in general is becoming a bigger issue as states move more Medicaid patients into managed care and as Medicare margins diminish.
But others say HMO payment lags are mostly a problem found in the Northeast, where a handful of plans, including Empire Blue Cross and Blue Shield and Health Insurance Plan of Greater New York, have experienced computer problems.
The American Association of Health Plans doesn't keep data on how long it takes its member HMOs to pay hospitals and doctors, says spokesman Don White. But he referred to work done by Peter Kongstvedt, M.D., a partner in Ernst & Young's Washington office, which shows some of the nation's biggest plans are speedy payers.
Kongstvedt's effort to benchmark the HMO industry's "best practices" looked at "timeliness of payment" by eight large plans with more than 300,000 enrollees. Plans in the sample paid clean claims within five days to just under 30 days, or 10 to 12 days on average.
Members of the Greater New York Hospital Association wish HMOs were that swift. The GNYHA applauded Vacco's crackdown against Oxford this summer. At the time of his investigation, Oxford owed New York-area hospitals an estimated $183 million and doctors $55 million on undisputed claims more than 30 days old. Oxford agreed to pay at least $1 million in interest on those claims and 9% interest on future undisputed claims that go unpaid beyond 30 days. And it agreed to pick up the $150,000 tab for the cost of Vacco's investigation.
Hospitals' own bill-paying record is nothing to brag about. Nationally, vendors that generate 70% or more of their revenues from hospitals received payment in an average of 39 days last year, according to the Health Industry Distributors Association in Washington. Normally, payment is required within 30 days. But in New York City, vendors can wait as long as 150 days to get paid, says Chris Pancratz, the HIDA's executive director.
"I think some of the poor ones are getting worse and worse," adds Stuart Fleischer, vice president of finance at Micro Bio-Medics, a Pelham Manor, N.Y.-based distributor of medical and office supplies in the Northeast. The firm, which markets to hospitals under the name Caligor Hospital Supply, will review a late payer's business plan before agreeing to do more business.
Kenneth Raske, the GNYHA's president, readily admits that New York hospitals are slow payers. He blames years of rate regulation, which stifled hospital cash flow (See chart). "This is endemic to a system that's been regulated for 20-some years," Raske says. Now that rate controls have been lifted, he expects the situation to improve.
Meanwhile, the GNYHA is determined not to let claims backlogs squeeze members again. He says hospital executives met with senior managers of Oxford last week to find ways to expedite future claims and reconcile pending ones. In addition, the association is designing a monitoring process to spot payment problems early.
"My major concern is, as we move further into managed care, there will be a proliferation of ma-and-pa managed-care companies . . . that will have a variety of paper-shuffling processing efforts," Raske says. Those small operations, he suspects, might expose hospitals to "inordinate" payment delays.
New Jersey hospitals also are feeling the pinch of payment delays. In September, a group of HMOs entered a voluntary prompt-payment agreement with the state. New Jersey's 10 largest HMOs, which account for 85% of the managed-care market, agreed to pay hospitals and physicians within 60 days of receiving a claim. Claims that languish beyond 60 days will cost HMOs 10% interest plus fines of up to $1,000 per violation.
The NJHA took a snapshot of the problem earlier this year. From January through April, 10 hospitals had billed $88 million to 10 HMOs. A total of $33 million, or 37% of the claims, were out of compliance. That means the HMOs either failed to respond to claims within 45 days or to pay them within 60 days, the NJHA says.
"The problem seemed widespread enough that we felt action needed to be taken," says Len Fishman, New Jersey's commissioner of Health and Senior Services.
While hospitals are pleased with the agreement, they are disappointed with the state's failure to establish a specific process for confirming the receipt of claims, defining what constitutes an accurate, or "clean," claim and lodging complaints.
"It seems as if it's kind of an empty gesture in a way," says Larry Monagle, the NJHA's assistant general counsel. "We're worried that when it comes time to enforce the provisions that the hospitals are not going to get any backup from the state." Furthermore, he says, the hospital industry was told it would be involved in the process of drafting regulations. So far, association leaders have not heard a word from the state.
Fishman says his department is working on draft language now. He expects the rules to be adopted within a few months.
By holding on to accounts payable after 30 days and investing that balance, HMOs can make millions, Princeton economist Uwe Reinhardt explained in a recent Commentary published by MODERN HEALTHCARE (Sept. 22, p. 40). In his view, that's just the law of supply and demand at work. He says providers aren't getting paid in a timely manner because they're in excess supply and lack economic clout. He suspects that providers' push for government intervention will lead to a "bewildering hodgepodge" of state and federal regulations.
HMOs deny playing the float. Fishman, New Jersey's health commissioner, says some HMOs suggested the problem of late payments was being overstated. "And we said, `Then you won't mind agreeing to make payment within 60 days,' " he recalls.
Just because HMOs have economic clout doesn't mean they are justified in making late payments, says the NJHA's Monagle.
"We wouldn't deny there are excess beds," adds Valerie Sellers, the NJHA's vice president of health planning and research. But providers still have a responsibility to ensure that services are preserved, particularly for the state's most vulnerable populations.