One Texas legislator named it the Father's Day Massacre. On June 17, the last possible day for such action in the state's 77th legislative session, Gov. Rick Perry drew his veto pen and slashed down 78 pieces of legislation that elected officials from both parties had debated and approved. Among the carnage left on the cutting floor lay the prize of the session for physicians, House Bill 1862, the prompt pay bill. The bill would have closed loopholes in an existing statute requiring health plans to pay legitimate, properly submitted claims owed to physicians within 45 days.

Insurers have found ways to delay or deny payments owed to physicians for years, causing doctors throughout the country to suffer cash flow problems and prompting many to question what the insurers are doing with the money. Recent surveys compiled by the American Medical Association show that in some markets, certain health insurers are consistently more than 120 days late in paying clean claims to providers and more than a third of the country’s physicians report waiting more than 45 days for the payment of clean claims.

According to the AMA, delayed payments seriously impact patient care. Physicians report they have had to cut staff and reduce services for patients while increasing staff in their accounts receivable departments to handle the filing, tracking and re-filing of claims. Many physicians have had to take out loans to keep their practices afloat and some have even been forced out of business. This is especially devastating for patients living in rural areas considered medically under-served.

The American Academy of Family Physicians reports that 43 states have put health insurers on notice to pay clean claims in a timely fashion or face penalties and fines. Forty states currently have prompt pay laws on the books and 33 states identified strengthening or initiating prompt pay provisions as a priority for this year’s legislative session.

Texas legislators spent a sizeable amount of time and energy in each of the past three legislative sessions trying to ameliorate the problem. Once health plans began to find the loopholes in the prompt pay bill passed in 1999, organized medicine began gearing up for another round.

After the demise of this year’s much-anticipated bill, physicians are left wondering what the days ahead will bring. “Governor Perry’s veto of HB 1862 … gives the profit-driven managed care industry in our state a license to steal,” said Tom Hancher, M.D., president of the Texas Medical Association in a statement released the day after the veto. “The chaos this veto will produce can only drive more physicians into financial distress or bankruptcy.” 

The veto came as a shock to physicians and other observers, who had watched as the bill sailed through the House, encountered some friction in the Senate and was passed by the conference committee almost in its original form. “TAFP strongly supported and worked diligently to make the prompt pay bill a reality because it would have improved the ability of family physicians to provide appropriate and timely care to their patients,” says Lloyd Van Winkle, M.D., president of TAFP. “The failure of the governor to inform the bill’s supporters of the areas of his reservation during the debate process is baffling and inconsistent with Texas’ history of cooperative governmental relations between the governor’s office and the Legislature.”

“The failure of the governor to inform the bill’s supporters of the areas of his reservation during the debate process is baffling and inconsistent with Texas’ history of cooperative governmental relations between the governor’s office and the Legislature.”

In a statement released after the veto, Perry explained that legislation enacted in the previous session already required prompt payment to health providers and that joint negotiation provisions passed last session had strengthened physicians’ bargaining position with health plans to rectify problems through contract. “Final rules implementing these measures have only recently been adopted and deserve greater opportunity to achieve their intended results,” the governor said in the press release. He also said that provisions in the bill to protect physicians from being forced into binding arbitration would send more disputes to the courthouse for resolution, driving up the cost of health care.

President-elect of TAFP, Justin Bartos, M.D., says he has difficulty understanding why the governor would support a process of controlling health care costs by not paying bills or by delaying payment. “The governor had an opportunity to acknowledge the efforts of the Legislature to restore normal business relationships between the insurance industry and physicians. Instead he has left the system in chaos, which will ultimately affect physician and patient satisfaction,” Bartos says.

About a half hour’s drive north of Austin, the Georgetown Medical Center Clinic is what you’d expect—an average-sized and outfitted primary care clinic with eight doctors, two physician assistants and a modest complex of offices. The clinic maintains about 45 managed care contracts, and according to one of the clinic’s physicians, Daniel Voss, M.D., accounts receivable for the practice rose to nearly $1 million earlier this year. “We’ve actually had to add some temporary employees just to try and handle the re-filing of claims … to try to get our AR down,” Voss says.  

Administrator of the clinic, John Guzzino, says this is the mark of an upward trend he has witnessed in the number of unpaid claims as insurers find ways to slow the payment process. Guzzino estimates between 350 and 450 patients a day see the doctors at Georgetown Medical Center, generating more than 2,000 claims a week averaging $70 apiece. His most recent report shows the clinic is owed around $600,000 from various health plans. A quarter of a million of that is over 30 days old and about $130,000 is over four months old, Guzzino says. 

Prudent management and frugal business practices have kept Georgetown Medical Center out of dire straits, but there are consequences to be paid when the checks aren’t coming in. Trying to secure payment takes staff time and effort. Guzzino says he spends more than half of his time at work dealing with insurance companies. Even though the practice has fewer providers than it did a few years ago, the added administrative load has forced the clinic to up the number of accounts receivable staffers from five to seven.

“It gets to be frustrating,” Guzzino says, “because if we had a third or even a fourth of the money that is owed to us in our pockets, we could purchase additional resources for the clinic. We wouldn’t have to be so frugal with staff salaries and things like fixing the roof.”  

Medical clinics across the state face similar and sometimes, much worse conditions. A recent TMA study indicates that 60 percent of Texas doctors experience cash flow problems because of delayed claims. Almost one of every five physicians surveyed said they experienced problems so severe they drew from personal funds to pay for practice operations, and another 13 percent responded they had to secure commercial loans to stay in business. The AMA says it has received countless e-mails and letters from physicians detailing office closings and early retirements not because they are being paid too little, but because they are being paid too late.  

“All physicians live in a real world, which requires them to meet their financial obligations on a regular basis and when they’re unable to be reimbursed for the care they provide, it puts in jeopardy their ability to provide future care. In other words, they could go out of business,”

“One of the most universal problems facing doctors today is dealing with third party payers in the managed care industry,” says TAFP President Van Winkle. “All physicians live in a real world, which requires them to meet their financial obligations on a regular basis and when they’re unable to be reimbursed for the care they provide, it puts in jeopardy their ability to provide future care. In other words, they could go out of business,” he adds.

HB 1862 was designed to remedy the situation, although it was the third attempt in as many legislative sessions to create a workable prompt pay law. The first law passed in 1997, set a 45-day time limit on the payment of clean claims. Unfortunately for doctors, the law didn’t define a clean claim or include penalties for companies not in compliance, so after a two-year wait—round two.  

The 1999 law put the state insurance commissioner in charge of crafting a clean claims definition and gave the department of insurance the power to levy fines on offending insurers, but it permitted insurers to modify penalties by contract. The clean claims definition put in place by the commissioner in May 2000, allowed health plans to list their own criteria for clean claims as long as they gave doctors 60 days notice.

“It appears that we’re at the mercy of the HMOs to determine exactly what a clean claim is, and that is a moving target,” says Ira Bell, M.D., chair of TAFP’s Commission on Health Care Services and Managed Care. “The biggest disappointment to me is that we’re still talking about this problem two or three legislative sessions after we thought it had been fixed.”  

Doctors and practice managers say tacking on requests for additional information is only one of the tactics health plans use to put off paying claims. Often, insurers report they haven’t even received contested claims. According to Guzzino, this is the response he and his staff at Georgetown Medical Center get for over half of the claims they investigate that are more than 45 days old. “We send all our mailed claims with the envelope stamped ‘address correction requested’ so if they go to an errant address they would be returned to us and none are,” he says. “Many times, carriers say that they don’t have any record of our claim even though we transmit the claim electronically and we have verification in hand.”  

Rep. Carl Isett, R-Lubbock, knows this tactic all too well. In his professional life, he provides billing services to physicians. One of his clients had complained so much about a particular health plan not paying its bills that Isett decided to get involved. He gathered about $100,000 worth of claims from the doctor and carried them to the insurer himself. He called a month later to see if the bills had been paid, and they hadn’t. The insurer said the claims were never received. “The absurdity of a health plan ‘losing’ a hand-delivered claim enraged Isett so much that he asked to be a co-sponsor on the bill,” says Tom Banning, director of legislative affairs for TAFP. The prompt pay bill’s sponsor in the House, Rep. Craig Eiland, D-Galveston, told this story to legislators on the House floor during debate on the bill.  

Health plans also routinely delay claims while they determine if the patients have other health coverage. Currently, checking the box on a claim form indicating the patient does not have other coverage isn’t enough to satisfy insurers. Many plans require physicians to attach handwritten verification from the patient, precluding electronic transmission and causing further delays.

“Coordination of benefits, in our opinion, is an insurance function,” says C.J. Francisco, Senior Counsel for TMA. “The doctor doesn’t have any way of finding out other than to ask the [patient].” Health plans have the staff and resources to find out if other coverage exists for patients and to coordinate how much each should pay, he says.  

Another practice that has physicians wincing is retrospective denial. When a physician calls a plan to see if it will cover a procedure and the plan answers “yes,” under current law the plan has no obligation to stick by its word. Physicians complain that plans regularly deny claims they had previously agreed to pay. Health plans say it takes time to correctly determine if a patient is covered for a procedure and that prior authorization doesn’t mean definite authorization, but doctors argue that once the retrospective denial comes down, the procedure is already done.  

The new bill had fixes for each of these problems. Carefully crafted to avoid challenges based on the Employee Retirement Income Security Act, the “fair pay” bill would have regulated contracts between insurers and providers. For instance, the bill defined “prior authorization” as “a determination by the insurer that the medical care or health care services proposed to be provided to a patient are medically necessary and appropriate.” For physicians, that would have meant that once an insurer gives prior authorization, it could not later deny payment saying the procedure was not medically necessary.  

Under the provisions of the vetoed bill, a clean claim would have been a completed HCFA 1500 or a UB-92 for institutional providers. Doctors could have assumed that paper claims had been received by health plans three days after mailing them, even without verification. And for electronic claims, verification from a clearinghouse that a claim had been sent to the insurer would have constituted proof of receipt. Every stage of claims auditing would have had a time limit and once a claim was 180 days old, insurers would have been barred from requesting remittance from providers.  

And as for requests for additional information? Insurers would have had only one bite at the apple, and their requests would have had to be specific to the person and the incident listed on the claim. Limits would have been set as to when an insurer could make the request and how long the review could last, and claims could not have been delayed awaiting information from sources other than the physician.  

Coordination of benefits would have become the responsibility of the insurers. Health plans would have been required to provide fee schedules, bundling information and other claims processing material to physicians if asked. Offenders of these provisions would have been met with stiff penalties and the Texas Attorney General would have had jurisdiction under this statute to investigate complaints. Perhaps most importantly, none of these provisions could have been waived by contract.  

The week before the fated Father’s Day, the atmosphere about TAFP was electric. There was a sense among the members and staff that things were about to get better. “I think as long as Perry hangs in there and signs the [prompt pay bill], the members should be happy,” said Roland Goertz, chair of the academy’s Commission on Legislative Affairs when interviewed that week. “We wanted health plans and insurance companies and HMOs to live up to their contractual agreements, and I think this will do that.”

According to Tom Banning, director of legislative affairs for TAFP, not only did the bill have the backing of physicians’ organizations, but it had also garnered broad support from hospital associations, allied health associations and consumer groups. Scores of doctors had visited the floor of the Texas House of Representatives to give testimony. Many, like Van Winkle, carried stacks of unpaid claims and examples of delaying tactics to show legislators the scope of the problem. With the bill’s passage by the Senate in the last week of the session, all the hard work seemed to be paying off.

On the other side of the fence, the bill’s detractors were working furiously. Health plans and the Texas Association of Business and Chambers of Commerce put out releases saying the legislation would cause insurance premiums to skyrocket. After remaining silent on the issue throughout the session, Texans for Lawsuit Reform weighed in on the bill at the 11th hour claiming an arbitration clause in the bill would clog the courts with lawsuits brought by physicians against insurers.

The arbitration clause proved to be the sticking point. An eight-line clause in a 9,000-word bill, the fatal paragraph provided that insurers could not mandate binding arbitration or other dispute resolution by contract, but that physicians and insurers could agree to mediation after disputes arise. In the governor’s statement released after the veto, Perry said HB 1862 would erode the ability of a health plan to agree to settle contract disputes through arbitration and other measures, thus driving up health care costs and increasing the number of uninsured Texans.

“This argument is specious at best,” Banning says, pointing out that language in the bill did not prohibit the use of binding arbitration or other forms of dispute resolution when physicians and insurers agreed to use such procedures. “The reason for prohibiting the binding arbitration requirement in contracts is doctors already agree to discounted fees under managed care contracts. If the insurer forces the provider to go into binding arbitration, they can extract another discount to resolve the dispute, leaving the physicians to literally settle for pennies on the dollar,” Banning says.

In the aftermath of what some around the Capitol are calling “Bloody Sunday,” supporters of the prompt pay bill join supporters of the other 77 bills vetoed that day in asking the question—why didn’t Perry come forward with his concerns during the debate? On the day following the veto-fest, Sen. Gonzalo Barrientos, D-Austin, told the Austin American Statesman, “If the governor had problems with pending legislation, it would have been nice to have his input while there was still time to address his concerns. Instead he sat by until the session expired and then, remarkably, overrode the judgment of elected lawmakers of both parties.”

Rep. Eiland, the “fair pay” bill’s sponsor, told the Austin American Statesman, “If the governor had come to me even before the floor debate, or during conference committee, and said he wanted to change the arbitration provision, we would have changed it. The rest of the bill was too important.”

Business groups and health plans cheered the governor’s action. “While we are sympathetic to the physicians who are not paid promptly by health care underwriters, we asked the governor for this veto because to do otherwise would have been inconsistent with our philosophy that lawsuits should not be the first or only solution chosen to resolve disputes,” said Leo Linbeck, chairman of Texans for Lawsuit Reform, in a statement released June 18.

“HB 1862 would have created a bonanza for trial lawyers at the expense of employers, patients and health providers,” said Bill Hammond, president and CEO of the Texas Association of Business and Chambers of Commerce, adding, “HB 1862 would have forced physicians to deal more with lawyers than patients.”

“This is the same ‘Chicken Little’ defense they’ve been using for years,” Banning says. “Since the passage of Senate Bill 386, the HMO Liability Bill of 1997, a whopping 17 lawsuits have been filed against health plans, and since the passage of the Physician Joint Negotiation Bill of 1999, health care costs in Texas have remained stable.” Banning says the prompt pay bill would not have provided a new cause of action. “If anything, it would have dramatically reduced the probability of lawsuits against the plans,” he says.

In the statement released about the prompt pay veto, Perry directed the Texas Department of Insurance to be more aggressive in helping physicians and health care providers in claims disputes. In fact, insurance commissioner Jose Montemayor has turned up his rhetoric in past months, releasing statements threatening to levy fines on insurers who don’t pay on time. In April, Montemayor appointed Senior Associate Commissioner Audrey Selden as the department’s ombudsman for prompt pay issues. TDI has also posted an online complaint form for providers on the department’s Web site, www.tdi.state.tx.us.

If the commissioner makes good on his promise and starts hitting late payers with fines, Texas will join states like New Jersey, New York, Florida, Maryland and Georgia, which have all doled out stiff penalties, many in excess of $100,000. The Ohio Department of Insurance fined seven companies a total of $545,000 in April after conducting an examination of provider payment delays.

But for many physicians, regulatory fines are not the answer. “This untenable situation simply cannot be remedied by dumping the problem back in the lap of the commissioner of insurance,” says TMA President Tom Hancher. “Doctor’s files are stuffed with letters from [TDI] over the past two years stating they have no authority over their prompt pay complaints.”

TAFP will be working between now and the next legislative session in 2003, to make sure the insurance commissioner strongly enforces the laws on the books and aggressively goes after plans found to be in violation, Banning says. The academy’s Commission on Managed Care and Health Care Services is identifying ways to partner with TMA in gathering information about the problems of the marketplace. One such avenue is participation in the TMA Hassle Factor Log, a program designed to collect data on reimbursement troubles physicians experience with managed care organizations.

Doctors can download the Hassle Factor form from the TMA Web site, www.texmed.org, fill in the name of the carrier, the type of problem, write a description of the specific problem and fax the form to TMA’s Department of Health Care Financing. Information gathered in this way can be used in negotiation with specific health plans and to demonstrate the difficulties physicians face in their relationship with insurers.

“A handful of members serving in the leadership and one or two lobbyists alone cannot carry the message,” says TAFP President-elect Bartos. “This is a wake up call to the membership at large that it’s going to take an investment by all the members of the academy to develop relationships with their local legislators and to use their extended families and their employees to carry the message.”

By using the TDI online complaint form and the TMA Hassle Factor Log, and by investing in the TAFP Political Action Committee, physicians can lay the groundwork for another run at prompt pay next session. According to Bartos, TAFP members must be vigilant and continue to work to persuade the Legislature and the governor that “we’re interested in what’s best for patients and in a health care system that works for providers, as well.”