Enforcing prompt-payment regulations: the Texas approach - Managed Care

Healthcare Financial Management, July, 2002 by Jim E. McCoy, Michael C. Han, Michael S. Malloy

To ensure that insurance carriers pay providers in a timely manner, Texas has adopted strict payment regulations. Enforcement of the regulations has led to restitution payments for many providers. However, issues such as clean claims, unclerpayment, discrepancies in payment dates, and self-funded claims continue to present challenges.

For years, prompt receipt of payment from insurance carriers has been a problem for health-care providers. Although 48 states have passed laws and regulations requiring prompt payment (see sidebar, page 34), factors such as unsophisticated provider information systems, ambiguous regulations, and a lack of enforcement methods have allowed carriers to delay payment of claims without repercussions. Recently, a few providers have asserted their legal rights to prompt payment. In some cases, payers that habitually underpay or are slow to pay have incurred significant fines.

Texas is leading the ongoing prompt-payment battle. In August 2001, Commissioner Jose Montemayor of the Texas Department of Insurance (TDI) fined 17 HMOs and insurance companies $9.25 million for violating prompt-payment rules. Montemayor's action set in motion numerous restitution payments to providers and changes in the definition of a clean claim.

To date, TDI enforcement of the prompt-payment rules has resulted in about $26.1 million in restitution payments for providers; additional restitution amounts remain outstanding.

Despite the initially impressive impact of this large number, many providers and the TDI suspect the amount is inadequate based on preliminary evidence and provider information. An independent review of five health systems owed restitution found all had received less than 5 percent of the potential amount due. Currently, the TDI is reviewing restitution payments to ensure that correct amounts are being paid.

The Texas Approach

Texas has enacted some of the most demanding prompt-payment laws in the United States. If a payer fails to pay a claim within 45 days, the payer must pay the claim at the provider's billed rate rather than the rate stipulated in the contract. Sometimes full-billed charges effectively triple the contractual payment rate. Most other states apply an interest-based penalty on unpaid or late amounts. Exhibit 1 compares the impact of penalties for full-billed charges in Texas with interest-based penalties in Washington, California, and New York.

For comparison purposes, claims listed in Exhibit 1 are those paid later than 45 days and are based on the claims detail of a large, urban Texas hospital. To be conservative, all accounts with zero payment have been removed from the sample. Only claims for which the payer has made at least partial payment are included. By making a payment, the payer implies financial responsibility for the claim and that the necessary information to adjudicate the claim is in the payer's possession. Underpayment is not addressed in the exhibit, However, it is important to keep in mind that in Texas and several other states, regulations and contractual agreements allow providers to receive compensation, including penalty dollars, for underpayment.

Restitution due is driven largely by the contractual and statutory terms surrounding a claim. Thus, similar claim information can result in radically different restitution amounts. In the exhibit, one reason the Texas amount is so high is that restitution under statutory terms, full-billed charges, results in penalty amounts 10 to 20 times greater than those of the other states listed.

Issues Affecting Enforcement

Having strong prompt-payment regulations in place does not necessarily mean a state will be able to enforce violations swiftly Several issues that affect timely enforcement of prompt-payment regulations include clean-claim submission, underpayment, discrepancies in payment dates, and self-funded claims.

Clean claims. Prior to Texas's August 2001 enforcement action, HMOs and insurance companies were allowed to request any documentation that they deemed necessary to process a claim. Payers routinely requested items not in the possession of healthcare providers, such as police reports, tax statements of health-plan members, and documents from college and university registrar offices. These requirements, which health plans insisted were necessary for claims processing, led to a high rate of denial or nonpayment.

Another significant factor regarding clean-claim submission is notification of missing information. In Texas, the responsibility for the clean claim does not lie solely with the provider. Payers must notify the provider within 45 days if a submitted claim does not meet all clean-claim requirements so that proper corrections can be made. A penalty of full-billed charges applies in cases where notification is not made by the payer in a timely manner. Complicating this process are situations in which payers inconsistently communicate with providers on claims that do not meet their payer-specific clean-claim definition.