Providers that banked on prompt-payment laws to improve their cash flow have been sorely disappointed. Dozens of state laws that were intended to hasten payments by health plans are under attack by cash-starved providers, which say reimbursements continue to be slow.
All but seven states have laws requiring insurers to pay claims within a certain time frame, usually 45 days. But critics say loopholes often allow insurers to delay or deny payments without fear of a legal violation. Further, some legislatures have not adequately empowered state agencies to enforce the laws.
"We're still in the `low pay, slow pay and no pay' mode in a lot of places," said Richard Wade, the American Hospital Association's senior vice president for communications.
In response to provider lobbying, many states are fine-tuning prompt-payment laws to make them enforceable. Some 33 states have identified prompt payment as a priority issue for the 2001 legislative session, according to the Washington-based National Conference of State Legislatures. So far this year, at least eight states have passed bills to amend existing prompt-payment requirements in some way. West Virginia and Iowa passed prompt-payment legislation for the first time.
States have passed a variety of measures since January. Indiana and South Dakota joined 10 other states that tightened deadlines for claims submitted electronically. The required time frames for electronic claims range from 15 to 30 days (See chart, next page).
Arkansas set a 12% annual interest rate for late payments and established that hiring third-party administrators to process claims does not relieve insurers of their obligation to pay.
Alabama empowered its insurance commissioner to impose administrative fines against insurers that have a pattern of overdue payments. Other states have been working to eliminate confusion over what constitutes a "clean claim" that must be paid.
But attention is also turning toward enforcement. HCA, until recently called HCA-The Healthcare Co., has lobbyists in several states promoting prompt-payment legislation.
"Where it's most effective is where some organization such as the insurance department actually takes it on as an issue and enforces the legislation," HCA spokesman Jeff Prescott said. "Sometimes there's no agency designated (to enforce it)."
In Texas, provider groups are waiting to see whether a pledge of heightened enforcement will have an impact.
Texas Gov. Rick Perry and state insurance officials pledged to toughen their stance in June, after providers criticized Perry for vetoing legislation designed to strengthen the state's prompt-payment law, which was adopted in 1999. The legislation would have limited health plans' retrospective reviews of medical necessity, extended the prompt-payment law to noncontracted providers and imposed larger penalties, among other measures. It also would have disallowed providers from signing contracts that nullify provisions of the state law.
In delivering the veto, Perry sided with health insurers and business groups that said the legislation would have increased lawsuits and led to higher insurance premiums.
Last week, Texas hospital officials were encouraged to learn that regulators would review insurers' claims-payment records to look for patterns of late payments and denials, rather than going through the arduous process of checking each provider complaint, said Patricia Kolodzey, director of insurance and managed care at the Texas Hospital Association.
"The proof is somewhat in the pudding," she said. "If we start to see fines indeed being levied (of $100 a day for every day a claim isn't paid), that can be fairly significant."
California, too, is looking for stronger enforcement. There, providers supported legislation passed last year that empowered a relatively new state agency, called the Department of Managed Health Care, to investigate prompt-payment complaints. The department levied its first penalty, against PacifiCare Health Systems, earlier this year. The fine was $250,000, according to published reports.
Barbara Jones, senior vice president of finance and economics at the California Healthcare Association, said she expects "significant improvement" in the payment practices of health plans as a result of better enforcement. Previously, she said, the state insurance department was charged with enforcing prompt payment, but that agency was more geared to respond to licensure issues than to provider and consumer complaints.
But others say enforcement is turning out to be just the start of a solution.
In New York, about 30 insurers have been fined a total of about $1 million since prompt-payment legislation was enacted in 1997. But every year, hospitals continue to see their days in accounts receivable increasing, said Jeffrey Gold, vice president of managed care and special counsel at the Healthcare Association of New York State.
Gold said he believes fines have embarrassed health plans but haven't diminished rampant delays and denials. The association is lobbying for legislation that would allow plans less wiggle room in denying claims because of inadequate or wrong data, and would address what providers say is a growing problem of underpayments.
Although some health plan advocates argue that prompt-payment laws could hinder insurers' ability to detect fraud, provider groups argue that state laws are necessary because hospitals and physicians do not have market leverage to refuse a contract. Going to court over every claim dispute would be too costly and time-consuming, providers say.
"Unless the state intervened, there would continue to be problems because managed-care plans had the checkbook and they also had the rule book in terms of when they thought a claim was appropriate," Gold said.
But even strong laws and strong enforcement aren't always enough.
Georgia has the strictest law on the books, with a 15-day deadline for payment. It also has some of the toughest enforcement. Since June 1999, the Georgia Insurance Department has levied at least 15 fines for prompt-payment violations, ranging from $15,000 to $300,000. But hospitals there are far from satisfied.
A state advisory committee of health plans and providers established last summer has identified about 24 problems, and many of those can't be solved by the government, said Glenn Pearson, executive director of GHA: An Association of Hospitals and Health Systems. For example, some managed-care contracts stand in the way of prompt payments because they require procedures that must be done manually, Pearson said.
Increasingly, insurers say hospitals and physicians must submit better information if they expect to be paid fully and on time. Often, hospital information systems and processes are standing in the way of enforcement.
"Providers may have the amount of what they think is unpaid mismatched with plan data. It's a function of a lot of providers being participants in a lot of different plans, and their systems just not being set up to properly track that," said Elizabeth Rogers, a lawyer in the Austin office of Vinson & Elkins, which represents both providers and insurers.
Georgia Insurance Commissioner John Oxendine said hospitals' submission of incomplete or inaccurate claims is a major impediment to enforcement. His department has begun conducting workshops to educate hospitals and medical groups about the technical pitfalls that lead to a denied or delayed payment.
Such education could alleviate the need for expensive enforcement. Georgia has six full-time staff members responding to payment complaints by large medical groups and hospitals. A separate staff handles complaints by small physician practices.
"The insurance companies are very sophisticated. If you make a technical mistake, they're going to catch it, and they're going to hold you to it. But they're within their legal rights," Oxendine said.