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

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

Underpayments. Some payers routinely pay significantly less than the contracted payment rate. Under Texas law, a penalty of full-billed charges applies if a claim is not paid at the contracted rate within 45 days. In many cases, it is not unusual to find payers underpaying at least one-third of their claims. When providers and payers dispute the accuracy of the expected payment, delays in the application of penalties often follow.

Differences in payment dates. Payers typically rely on the check-cut date to determine payment timing. Yet providers sometimes must wait a long time to receive payment after the check is cut. In some instances, this period exceeds one-fourth of the elapsed time to pay a claim. For one example involving claims that took 75 days from submission to receipt by the provider, 24 to 27 days on average had elapsed between the check-cut date and the date the check reached the provider's lockbox. It is easy to conclude that if the checks had been forwarded to the provider immediately after they had been processed and cut, the payer would have been close to complying with the statutory claims-payment time frame. Such occurrences have led to allegations that some payers intentionally may be holding or preventing the release of checks for extended periods after processing to manage their cash flow.

It is important for providers to keep careful records of associated lockbox dates. The lockbox date can provide undisputable verification of receipt of payment from a payer, as the date is based on the stamp of receipt that the bank places on a check when it is deposited. The stronger the provider's internal processes are, the greater the leverage the provider will have when building a case for restitution.

Employee Retirement income Security Act (ERISA). State prompt-payment laws generally are thought not to apply to self-funded or ERISA claims, which represent a large portion of a provider's overall claims volume and often are paid less accurately than fully funded claims. Some contractual obligations provide a means for restitution. However, most self-funded claims fall solely under Federal authority, and the government has not yet established a system for enforcement. Therefore, habitually slow payment of self-funded claims typically does not result in penalties the same way as seen with fully funded claims.

Distinguishing between self-funded and fully funded claims in the provider's patient accounting system also presents a challenge. Due to the prevalence of administrative services contracts, many of the same payer names that show up on fully funded claims also show up on self-funded claims. For example, a hospital may have thousands of claims labeled as Aetna claims in its system and be unable to determine what percentage of the claims are self-funded. Typically, patient identification cards do not indicate the type of claim. In some circumstances, an examination of check stock ownership will identify claims as originating from fully funded or self-funded payers. This data challenge has meant that only providers willing to devote resources to identifying fully funded claims can determine the amounts owed to them under state laws.