Managed Care Under Repair

Physicians Eye Improvements to Previously Passed Reforms

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Legislative Affairs Feature -- March 2001

By  Ken Ortolon
Associate Editor

During the past three sessions of the Texas Legislature, the Texas Medical Association championed a sweeping body of managed care reforms that placed our state at the forefront in protecting rights of patients and physicians in managed care plans.

From the first-in-the-nation law passed in 1997 giving patients the right to sue their health plan for negligent medical necessity decisions to the groundbreaking 1999 law allowing independent physicians to jointly negotiate contracts with managed care organizations, Texas has led the way for other states.

This year, however, TMA's managed care reform agenda is focused less on breaking new ground than on making the reforms already in place work better. In fact, TMA's priorities will center on proposed changes to three existing statutes dealing with prompt payment of physician claims, downloading of risk to delegated physician networks, and joint physician negotiations.

"You can't just pass a bill and go home," said Robert W. Sloane Jr., MD, of Fort Worth, who chairs the TMA Council on Legislation. "This is true in all areas, but it's particularly true in the complex area of private sector managed care. Frequently, you have to go back and revisit these laws and, in some cases, retool them."

Prompt payment

Tops on TMA's list of existing laws to retool is the so-called prompt payment statute. (See "Paper Tiger," January 2001 Texas Medicine.) The law, originally enacted in 1997, requires health plans to pay physicians and other health care professionals within 45 days of receiving a clean claim. Because health plans were largely ignoring the statute, it was amended in 1999 to impose interest penalties and administrative fines against plans that did not comply.

But in some cases, the health plans have learned to game the system, using a loophole that allows them to change the definition of a clean claim and avoid statutory penalties. In other cases, the plans are getting physicians to waive the prompt payment requirement entirely through provisions in their contracts.

Rich Johnson, director of TMA's Division of Medical Economics, says the main goal this year will be to amend the prompt payment statute to close some of the loopholes and to prohibit contract provisions that require physicians to waive their rights.

Delegated physician networks

A second law that must be addressed during this session is a statute that sets standards for physician networks that assume delegated functions, including risk, from managed care plans. The law was passed in 1999 but expires at the end of this legislative session if it is not re-enacted. TMA believes the statute should be re-enacted, but the Texas Association of Health Plans (TAHP) is attempting to add solvency requirements on physician networks that physicians believe are unrealistic and would do little to prevent bankruptcy of delegated physician networks.

Spencer R. Berthelsen, MD, medical director for managed care for Kelsey-Seybold Clinic in Houston and a member of TMA's Council on Legislation, says the law accomplishes several important goals.

It defines what a delegated physician network is and requires networks that pay their own claims to be licensed third-party administrators. Those that carry out their own utilization review activities also have to be certified utilization review agents. It also requires health plans to provide the delegated networks with patient eligibility data, shared risk information, and other information needed to manage the financial risk that the physicians are assuming. Finally, the law requires the networks to report certain information to the health maintenance organizations (HMOs), such as the amount of claims paid each month and any complaints received from physicians about their claims-payment processes.

Dr. Berthelsen, who also chairs TMA's Ad Hoc Committee on Physician Directed Networks, says the law is a plus for both physician networks and health plans. The networks get the information they need to measure their own financial performance and make necessary adjustments. The HMOs are able to monitor their physician networks and take early action if there seems to be a solvency question that might impact patients.

Under the law, the Texas Department of Insurance can even step in and halt enrollment of patients into unstable networks or shift patients to other networks if the one in question has serious solvency problems.

While the measure seems to be a plus for physicians, patients, and health plans, the measure was not without controversy when it was enacted. Managed care entities felt the law should have included specific solvency requirements for the physician networks similar to those that insurance companies must meet. And consumers wanted to add language allowing patients to go outside their network for certain types of care, something the networks opposed.

Therefore, the two-year "sunset" was added with the agreement that parties would discuss the unresolved issues during the interim prior to this year's session.

Dr. Berthelsen says physicians and consumer representatives have been able to resolve consumer concerns with proposed amendments. They would require "plain English" explanations informing patients that once they sign up with a physician network, they are agreeing to get their care from physicians within that network and cannot select physicians from their HMO's entire provider list.

However, the solvency questions have not been resolved, and TAHP is going forward with proposals to add capital reserve requirements to the law.

"Our recommendation at this point, in trying to be realistic and trying to work within market confines, is that an entity that's taking on substantial risk would have to meet certain solvency standards depending on the amount of risk," said Leah Rummel, TAHP executive director.

Connie Barron, TMA's associate director of legislative affairs, says the TAHP proposal would require delegated physician networks to maintain capital reserves of $100,000, or $50 per enrolled patient, whichever is greater. Plus, networks would have to maintain working capital reserves of half that amount.

Dr. Berthelsen says such reserve requirements would be no problem for a network as large as Kelsey-Seybold but could threaten the existence of smaller independent practice associations (IPAs) and other groups.

"These net equity and working capital requirements would be hard for IPAs to meet," Dr. Berthelsen said. "An IPA that's trying to establish itself and even established IPAs don't have that type of capital in many cases and potentially would be put out of business."

Ms. Barron says similar solvency requirements in California and other states have not prevented bankruptcies of delegated physician networks in those states and likely would not have prevented the handful of delegated network insolvencies that have occurred in Texas. (See "Saving Physician Groups," December 1999 Texas Medicine , pp 50-56.)

Austin health care attorney David Hilgers, JD, says the issue is really just a "straw horse" for the health plans.

"The amount of reserves they're talking about won't resolve the issues that have created problems in physician organizations," he said. "To put the burden on the physician groups would make it virtually impossible for them to take risk at all."

He says capitation rates paid to physician networks are the real problem causing insolvencies.

"HMOs have bought market share by keeping their premiums down, and that means they have to drive the dollars they're paying for medical services down," Mr. Hilgers said. "HMOs need to make actuarially sound decisions on what they're going to pay their medical groups. You have to pay the reasonable cost of taking care of patients."

Physician negotiations

The last of the existing managed care reforms likely to be revisited in this session is physician negotiation. Senate Bill 1468, sponsored by Sen. Chris Harris (R-Arlington) and Rep. John Smithee (R-Amarillo) and passed by the legislature in 1999, created a state action doctrine designed to protect independent physicians who want to jointly negotiate contracts with health plans from charges of federal antitrust law violations. The law requires the state attorney general to oversee any such negotiations.

While the law that authorizes joint negotiations has been in place for nearly two years, no physician group has taken advantage of it yet. Mr. Hilgers says that's because the process to get approval to negotiate is burdensome and costly for the physicians. Just to prepare an application-to-negotiate and present it to the attorney general could cost a physician group between $10,000 and $15,000, with no guarantee the application will be approved. And, if the application is approved, there's no guarantee that the health plan will come to the bargaining table.

"When this bill was passed, it was the subject of a lot of compromise and it had some very unknown areas, one of which was that the attorney general had to issue regulations on how it was going to work," he said. "And they were not easy regulations to draft, either."

Michael Cushman, JD, director of the TMA Health Care Delivery Department, has advised several physician groups that have looked at initiating negotiations under the law. He says neither the law nor the regulations enacted by Attorney General John Cornyn are "user-friendly."

"The regulations are quite burdensome in the amount of information that physicians have to supply," Mr. Cushman said. Some of the information required is not needed for the attorney general to make the determination provided for by the statute, and much of the information, if available, cannot be gathered without extensive communication among the physicians, which in itself could be construed as an antitrust violation, he says.

"It's a very thin line you have to walk and a very tricky one," Mr. Cushman said.

Mr. Hilgers agrees, but adds that the Attorney General's Office faced a difficult task in designing regulations that would pass federal antitrust muster.

"On the attorney general's behalf, I have to say that they're trying to walk a fine line to create a real state administration of this process so they don't run afoul of the federal antitrust laws," he said. "That's not that easy."

Legislation to solve these problems has not yet been drafted, but TMA is looking at outlining the information required for an application in the statute rather than in regulations adopted by the attorney general. The association also wants to clarify the role of the attorney general in evaluating a group's application.

"The role of the attorney general is to evaluate the competitive impact on the market of approving this group and the resulting potential for benefits to the affected consumers," said Dr. Sloane. "These negotiations are voluntary and nonbinding. The only pressing question is whether the health plan would be able to have an adequate number of physicians available for alternative contract negotiations should the approved group and the plan fail to reach agreement."

TMA also likely will seek changes in the law's provisions that set a higher standard for physicians to gain approval to negotiate fees and that limit the number of physicians in any market or any one specialty within a market who can band together to negotiate. And, TMA wants the statute clarified so that refusal to sign a contract by an individual member of a joint negotiating group following failed negotiations cannot be considered an antitrust violation on its face.

The association is working collaboratively with the attorney general's antitrust and managed care experts to refit the operating rules to ease the administrative and financial burden and clarify the safety zones for joint communications. This may make the legislation more modest and focused on extending the statute's time line and legislative intent.

The real estate model

The one substantial area of new law that TMA is considering in the managed care arena is legislation to create a standard physician contract. Ms. Barron says such a contract would be modeled after the standard contract that the real estate industry has established for residential real estate transactions in Texas. A panel of lawyers representing both the real estate industry and the State Bar of Texas developed that contract.

"The idea is that there would be a single contract that would be in total compliance with state law and regulations," Ms. Barron said. Fee schedules would be handled as an attachment, and health plans could add a limited number of additional attachments.

"If a doctor signs a plain, clean contract, he knows exactly what he's getting," Ms. Barron said. "If a plan wants to ask him to do something different, he flips to the back and can very easily compare just how many exceptions to the standard contract one plan is making compared with another."

The idea was floated to a lukewarm reception to a group of HMO representatives during TMA Council on Legislation meetings in late January.

Meanwhile, several other issues likely will surface on the managed care front. State Rep. Kyle Janek, MD, (R-Houston) already has filed House Bill 576, which would create a standardized credentialing process.

The bill, backed by TAHP, would divide the state into four regions, and a private credential verification organization (CVO) would be awarded a state contract to provide credentialing services in each region. Each CVO would provide core credentialing information, such as name, education, training, licensure, and board certification, on physicians practicing within its region. The information would be available to health plans, hospitals, or other organizations that credential physicians and other health care professionals.

Ms. Rummel says the system would be good for physicians because they would have to fill out the credentialing forms once rather than having to provide the information to each hospital or health plan with which they seek to affiliate. "Physicians would only have to deal with one place and only have to fill out the form one time," she said. "They would update to that one place as things change and not have to update to 15 different places. And the HMOs would not have to do duplicative work."

TMA is supportive of the concept and is working with TAHP, hospitals, and others to reach agreement on the bill.

Best of the rest

Several other issues also may come up during the session. Rep. Craig Eiland (D-Galveston) is considering legislation that would define medical necessity, and Sen. Eliot Shapleigh (D-El Paso) is looking at filing a bill to require medical directors for utilization review agents to have a Texas medical license.

And, Rep. Kip Averitt (R-Waco) may propose legislation to require health plans to pay for services rendered if a physician receives a preauthorization number from the plan. The proposal essentially would do away with retrospective reviews.

None of these bills actually had been filed as of late January and the Council on Legislation had not taken a position on the issues. However, TMA will closely monitor any legislation that is introduced on these or other managed care topics.

Ken Ortolon can be reached at (800) 880-1300, ext. 1392, or (512) 370-1392; or by email at Ken Ortolon.

SIDEBAR

Fast track to nowhere? Patients' Bill of Rights poised for quick work or political quagmire

While the Texas Legislature will have its hands full with managed care issues this year, the U.S. Congress is expected to return to the issue of patients' rights. And early in its new session, there was optimism that the issue could get quick attention this time around.

Connie Barron, associate director of legislative affairs for TMA, says that three different factions were negotiating over potential Patients' Bill of Rights legislation as of late January. First, U.S. Rep. Charles Norwood (R-Ga.), sponsor of the original Patients' Bill of Rights legislation in the last session of Congress, is talking with House Democrats and the Republican leadership about reviving his bill. Meanwhile, Senate Democrats are negotiating with Sen. John McCain (R-Ariz.) about sponsoring a bill in that chamber. Lastly, Senate Majority Leader Trent Lott (R-Miss.) has begun discussion with the House Republican leadership about getting a bill passed this year.

Whether all those negotiations will eventually produce action is unclear, but Ms. Barron says there appears to be consensus on issues such as setting a "prudent layperson" standard for determining if health plans must pay for emergency room care and for allowing out-of-network referrals to specialists. The sticking point, Ms. Barron says, continues to be accountability for negligent medical necessity decisions by health plans.

"It seems as though there is agreement on everything except the independent review process and accountability," Ms. Barron said. "Should there be accountability? If so, should it be in state court or federal court? Should it be bifurcated with medical necessity liability going to state court and administrative accountability going to federal court? Should there even be administrative accountability?"

If Republicans and Democrats can resolve those issues, the bill could be on a fast track to passage. The final sticking point, says Ms. Barron, is the potential involvement of Senator McCain, the former rival to President George W. Bush for the 2000 Republican presidential nomination.

Senator McCain has been an ardent supporter of campaign finance reform and has vowed to make that his No. 1 priority this year. If he sponsors both measures and attempts to move the campaign finance legislation first, the Patients' Bill of Rights could end up lingering in the Senate for months because campaign finance reform will be a hotly debated issue. Or, patients' rights could end up a bargaining chip in that debate.

Meanwhile, it is not clear where the president stands on the Patients' Bill of Rights. He touted the Texas managed care reforms during his campaign.

"I brought Republicans and Democrats together to do just that in the state of Texas to get a Patients' Bill of Rights through," President Bush said during the final campaign debate with then-Vice President Al Gore in October. "It requires a different kind of leadership style to do it, though. You see, in order to get something done on behalf of the people, you have to put partisanship aside. And that's what we did in my state."

Fellow Republicans have advised the president that patients' rights could be a much-needed early bipartisan win, but he has his own agenda, most notably, education.

"The Norwood-Dingell Patients' Bill of Rights is adapted directly from Texas' patient protection laws that then-Governor Bush supported and campaigned on during the presidential election," said Robert W. Sloane Jr., MD, of Fort Worth, who chairs the TMA Council on Legislation. "It would be a relatively easy step for President Bush to support every state's right to protect the safety of its citizens and close the ERISA loophole. This bill is close to completion and would send a powerful signal to the public about the president's long history of bipartisan cooperation as governor of Texas."

March 2001 Texas Medicine Contents
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