Be careful what you wish for, healthcare executives, because laws mandating prompt payment of insurance claims could come back to bite you.
The HMO owned by Penn State Geisinger Health System, Harrisburg, Pa., found that out the hard way.
The hospital system's 300,000-enrollee plan has become the first HMO in Pennsylvania to be fined for late claim payments to providers under a state law that took effect Jan. 1.
Pennsylvania's provider community had lobbied hard for the law, which it said was needed to combat a wave of tardy payments from insurers that was killing their cash flow. The law requires insurers in the state to pay clean claims within 45 days.
The law applies to all health insurers, regardless of ownership. In some cases the owners are hospitals and physicians.
After a routine inspection uncovered alleged violations of various state insurance laws and regulations, Penn State Geisinger Health Plan, based in Danville, Pa., settled with the state insurance department earlier this month and paid a $150,000 fine.
The most noteworthy violation was an alleged failure to pay more than 3,000 clean claims within 45 days of receipt or to pay annual interest of 10% on claims held after the time limit.
Under the settlement, the HMO did not admit wrongdoing.
Nevertheless, the regulators' findings did not completely surprise the not-for-profit system, which operates three hospitals.
"We knew that we were having trouble" partly because the plan has grown rapidly, said Scott Miller, a spokesman for the HMO.
Since 1997 the plan has added more than 100,000 new members, with total membership at 294,500 on Sept. 30, he said. Last year the plan earned $3 million on total revenues of $410 million. For the quarter ended June 30 this year, however, the plan lost nearly $5.5 million.
Miller acknowledged that 3,556 claims, or 5% of those the state audited during the quarter ended in March, were paid after the 45-day limit.
"Managed-care plans are feeling (pressure) all over the place," said Wendy Krasner, a healthcare lawyer with McDermott, Will & Emery in Washington. "On the other hand they should be able to pay their claims promptly."
Like other insurers, the plan found compliance was complicated by a lack of a definition for a "clean claim," Miller said.
A 10-year-old computer system also hampered the plan, but since the inspection, the HMO has switched computer systems, he said.