Part Two: Prompt Pay Reloaded

by Jonathan Nelson

from July/August/September 2003 Texas Family Physician

In a summer full of blockbuster sequels at the box office, it’s only fitting that the Texas Legislature had its own entry to offer, Prompt Pay Two — the return of H.B. 1862. You may remember that in the last episode, Gov. Rick Perry provided the perfect cliffhanger by vetoing medicine’s prompt pay bill designed to make foot-dragging health plans pay their bills on time. With a stroke of the pen, Perry had struck down medicine’s top priority for the 77th legislative session and infuriated physicians across the state.

Perry says he vetoed the bill because it prohibited arbitration, which he feared would increase the number of lawsuits. This session’s prompt pay bill, S.B. 418, didn’t include the arbitration clause and the governor signed it into law on June 17 at a meeting of the Texas Hospital Association.

“You might say it’s tough medicine for insurance companies, but it is exactly what’s needed to keep the doors of our hospitals and clinics across this state open,” Perry said at the signing.

When asked if he thought the passage of this legislation would heal the wounds created by last session’s veto, Perry said he believed those wounds were healed long ago. “Today is just a celebration, so to speak, of good legislation.”

Sen. Jane Nelson, (R-Flower Mound), who authored the bill, thanked the governor at the signing ceremony for his attention to health care throughout the session. “I am a business owner, so I tend to be a bottom-line kind of person. To me, if you perform a service, you ought to be paid for that service — on time and at the rates agreed to in your contracts,” Nelson said at the signing. “If you are not, there needs to be consequences. I have yet to hear a convincing argument as to why we should exempt the health care industry from this basic principle of free enterprise.”

According to Tom Banning, TAFP’s Director of Legislative Affairs, the passage of this prompt pay measure is an example of how legislative success depends on work done long before the session begins. Although the Legislature meets only 140 days each biennium, the process consists of a two-year cycle, with elections in even numbered years and interim studies and hearings occurring between sessions. Since Perry’s veto in 2001, the Academy has worked nonstop to ensure the slow-pay, no-pay tactics of health plans would be addressed this session.

“We came into the session with the vast majority of members who had committed during the election cycle to passing strong, comprehensive prompt pay legislation,” Banning says. “Because of the work our physicians did during the interim and election cycle, most members were already briefed on the policy and the need for the legislation.” 

According to TMA, at any one time, HMOs in Texas owe providers $1.2 billion and more than half of all claims filed to HMOs are not paid within the 45-day time limit.

“About 30 percent of a physician’s commercial receivables are still over 60 days old,” says Shellie Pruden, director of medical practice relations for the Dallas County Medical Society and chair of the Texas Medical Group Managers Association’s Legislative and Policy Committee. “Though there has been an improvement in the way that claims have been paid since the governor directed TDI [Texas Department of Insurance] to clean up the mess after the veto, this bill was still very, very necessary, not only for the timeliness of payment but for the accuracy,” she says, pointing out that one of the new law’s major provisions establishes incentives to pay bills accurately.

As it is now, health plans are free to determine what constitutes a “clean claim” but under S.B. 418, the Commissioner of Insurance has been authorized to define the term for all parties. Pruden says a committee of representatives of providers and health plans has been working with TDI to write that definition over the past 18 months.

S.B. 418 mandates that claims submitted electronically must be paid within 30 days, and paper claims must be paid within 45 days. If a health plan wishes to audit a claim, they must pay 100 percent of the contracted amount for the service within the 45-day period and notify the provider of their intention on the explanation of benefits form. Plans will have only 180 days to complete audits, which means they can’t ask to recoup payment after that period. Pruden says that plans sometimes try to recoup overpayments three or four years after the services are rendered.

The prompt pay law also sets standards for requesting attachments to claims. Plans will be able to make a request only once and the information they request must be specific and related to the episode of care in question.

Physicians will have to wait to file duplicate claims until the 46th day and they will have to submit claims within 95 days of rendering services or they forfeit the payment. When more than one plan is responsible for the payment of a claim, the plans will have to work out the coordination of benefits between themselves. Pruden says this should take the doctors out of the “middle man” position.

S.B. 418 says providers may have access to the rules each plan uses to determine bundling and down-coding procedures, but reformers were unable to get those rules standardized. Pruden says they tried to include a provision forcing commercial plans to adhere to the National Correct Coding Initiative, which is the standard that Medicare follows. She says another provision lost was one to simplify the current credentialing form providers submit to plans when applying to join their provider lists. However, physicians will be glad to know that because of S.B. 418, no longer can health plans circumvent prompt pay provisions through their contracts.

Among the law’s most important provisions is the one prohibiting retrospective denials of payment when services have been pre-authorized. That’s right — if the health plan says they’ll pay for a procedure, then they have to pay for it. This provision goes right to the heart of why C.J. Francisco, senior counsel for TMA, believes S.B. 418 will apply to many if not all employer-based plans.

While the courts have said that health benefits provided by employers fall under the protection of the Employment Retirement Income Security Act of 1974 and therefore cannot be regulated by state law, states do have the ability to regulate contracts, and Francisco says the verification process establishes a contract between the plan and the provider. “If the physician says, ‘Hey, if I render these services, will you pay for it?’ and the plan says, ‘yes I’ll pay for it …’ that’s an offer and an acceptance,” Francisco says. “If the [provider] goes ahead and does it, there’s this detrimental reliance, which is a consideration, and you have the elements for a contract — offer, acceptance, and consideration.”

With the many varieties of employer-based plans available, there is some question as to which plans this might apply and Francisco says there will undoubtedly be court challenges. “No statute is really effective until somebody sues over it,” he says, but he’s willing to say that the statue clearly applies to those ERISA plans considered to be fully insured. Those are plans in which an employer purchases an insurance product for the company and shifts all the risk for payment of medical charges to the insurer.

The catch? The plan has to verify payment to establish the contractual agreement and S.B. 418 doesn’t require plans to decide on verification. Rep. Craig Eiland, (D-Galveston), says the final version of the bill isn’t as good as it could have been. “The bill that came out of the House would have prevented health plans from simply refusing to provide verification,” he says. A provision he helped add to the bill on the House floor would have given physicians options to arrange for payment if verification was refused or not given. “That was threatened with a veto,” he says, “so in order to get half a loaf at least, we went ahead and passed it without that, but with the realization that if health plans refused to verify on a routine basis, … we would have to come back next session and do what we proposed this time.”

If a health plan refuses to verify payment, the physician can work out a fee-for-service arrangement with the patient, who can then try to secure payment from his or her insurer. Pruden predicts patients won’t be happy with this scenario. “How many times is this going to happen before suddenly we have got chaos in the system?” she asks.

Chaos may be brewing in the promulgation of rules surrounding this provision. In mid-June, TDI appointed a technical advisory committee to prepare the first set of what Pruden predicts will be hundreds of pages of rules relating to S.B. 418. The proposed rules would allow a 15-day delay between verification requests and health plan responses. Other problems include the definition of billed charges for purposes of calculating penalty provisions, as well as the compliance date, which has been extended to Jan. 1, 2004.

“It’s our belief that these proposed rules are clearly outside the scope of the statute,” Banning says. “We are doing everything in our power to make sure these rules do not go forward.”

The public will have at least 30 days to comment on the proposed rules. Thirty days after the end of that period, the rules would go into effect unless TDI were to pull them down and rework them. Read the Texas Register online at www.sos.state.tx.us/texreg/ to consider and comment on the rules.

Sen. Nelson says she hopes all plans operating in Texas will comply with the provisions of S.B. 418. When asked what could be done if health plans routinely refuse to verify payment for services, she smiles and says, “Well, there’s always another session.”

Read Part 3: Nightmare on Congress Avenue