Knowledge Is Payment: Understanding State Prompt-Payment Laws

Healthcare Financial Management, May, 2001 by Robert L. Roth, Margit H. Nahra

Faced with lagging receivables, hospitals across the country increasingly are suing delinquent payers to obtain payment States have responded to the provider payment crisis by enacting and enforcing a rash of new laws requiring payers to pay claims within strict time frames or face steep penalties. To take advantage of the protection afforded by these laws, providers need to be aware of prompt-payment statutes in states in which they provide care, in which their patients live, and in which their payers are located. By becoming aware of their rights and obligations under these laws, providers can use the prompt-payment regulations proactively to avoid payment backlogs without resorting to litigation.

Hospitals waited an average of 62.8 clays to be paid in the third quarter of 2000, according to The Hospital Accounts Receivable Analysis. [a] Many hospitals face even greater delays when seeking payment from health plans. A survey conducted by the California Healthcare Association in 2000 found that its 450 members were owed nearly $1 billion for claims more than 60 clays past due from health plans. [b]

Such delays have caused some providers to resort to litigation to collect overdue payments. Last year, for example, 24 New York hospitals sued Aetna U.S. Healthcare, alleging the insurer had violated state prompt-payment and other laws. [c] Catholic Healthcare West sued Blue Cross of California for $50 million, alleging unfair and fraudulent business practices related to delayed payments, [d] and West Tennessee Healthcare System sued Access MedPlus for $3.5 million in unpaid bills. [e] Similar lawsuits have been brought by or on behalf of physicians, Nevertheless, litigation is an imperfect remedy for a provider seeking payment because it is costly and time-consuming.

Fortunately, states increasingly are imposing stringent prompt-payment requirements on payers. For example, the State of New York was engaged in 1997 in a highly visible confrontation under the state's consumer protection laws with a health plan concerning a claims backlog that exceeded $230 million. [f] This backlog, which included claims to contracted providers, was resolved when the plan made an agreement with the state's attorney general to pay an annual rate of interest of 9 percent on claims not paid within 30 days.

Soon after this settlement, the New York legislature enacted a statute requiring payers to pay claims within 45 clays of their receipt or incur a substantial interest penalty The law also imposes a $100-per-claim fine on payers that have generated multiple complaints, an amount that quickly adds up for payers with significant backlogs. The law already has been imposed on Community Health Plan, which was fined $1 million for late payment and other violations of the insurance code.

Legislation of this sort has been passed across the country. As of December 2000, 42 states have enacted prompt-payment provisions, and significant enforcement actions have become commonplace.

The mere existence of a prompt-payment law, however, should not be taken as a guarantee that payment will be made quickly because the rights afforded under such statutes vary widely from state to state. Providers must become educated about their rights under their applicable state laws and be proactive in asserting them.

Using Prompt-Payment Laws

Providers can take several steps to ensure they take full advantage of state prompt-payment laws to collect more timely payments from problem payers.

Knowledge. The first step providers should take is to become knowledgeable regarding the existence and scope of the prompt-payment laws that may be applicable to the provider's claims. This step may be challenging, because the prompt-payment statute of the state in which the provider is located may not apply to an out-of-state payer. Therefore, it is important to understand the prompt-payment laws of each state in which the provider's hospital operates, from which the provider's hospital draws patients, and in which health plans with which the provider's hospital contracts operate. For example, a hospital in the District of Columbia may contract with a Maryland health plan to provide services to enrollees who are residents of Virginia. Such a provider needs to be familiar with the prompt-payment laws in all three jurisdictions.

Scope. It is important to determine the scope of the application of prompt-payment laws in each state in which the provider does business and whether the law applies to the type of entity from or for which the provider is seeking payment. For example, Illinois's prompt-payment law is very broad, specifically stating that it applies to "insurers, health maintenance organizations, managed care plans, health care plans, preferred provider organizations, independent practice associations, and physician-hospital organizations." By contrast, Louisiana's law applies only to issuers of health insurance.

There also may be territorial limitations to consider. For example, New York's prompt-payment law applies only to New York-licensed payers, and Maryland's law applies only to claims submitted by Maryland-licensed providers.