1999 Legislative Compendium: Market Fairness/Managed Care Reform

Physician Negotiation Bill

Overcoming vigorous and well-funded opposition from health plans and some employer organizations, the 76 th Texas Legislature overwhelmingly passed Senate Bill 1468 by Sen. Chris Harris (R-Arlington) and Rep. John Smithee (R-Amarillo), a landmark bill granting individual physicians the right to jointly negotiate with managed care organizations. Gov. George W. Bush signed the bill on June 20, stating that it would level the playing field when it comes to determining patient quality of care.

Who Can Negotiate?
Individual, competing physicians, so long as the negotiating physicians do not represent more than 10 percent of the physicians in a health plan's service area or dominate any one specialty. On a case-by-case basis, the Texas Attorney General may establish a higher or lower percentage as conditions warrant.

Physicians wishing to negotiate must designate a third party to represent them during talks with health plans. Individual physicians may opt to be bound by the terms negotiated between their representative and the health plan. However, health plans retain the right to contract with or offer different terms to individual physicians.

If a plan agrees to come to the table, negotiations between physicians and the health plan are voluntary and non-binding. Either party may end negotiations at any time.

What Is the State's Role in the Negotiation Process?
The attorney general must approve all negotiations prior to initiating discussions with a health plan. The attorney general must give a decision within 30 days of receiving a request. If the request is disapproved, the attorney general must specify why the request was denied and suggest remedial steps to conform to the law.

Prior to implementing an agreement with a health plan, the attorney general must review the agreement to ensure that it is reasonable, will not hurt competition, and will serve the best interests of patients.

The attorney general also is required to assess fees to cover the administrative costs related to SB 1468. Fees will be determined by rule.

What Contract Terms or Provisions Can or Cannot Be Jointly Negotiated?


Negotiable Practices/Procedures

Prohibited Activities

Patient referral procedures

Negotiations or communications related to reimbursement rates, except when a health plan has substantial market power and the plan's fee schedule threatens to (or already has) jeopardize patient access. The attorney general will define "substantial market power."

Utilization review and quality assurance procedures

Negotiations aimed at removing "tied products" provisions

Formulation of reimbursement methodology

Negotiations aimed at excluding, limiting, or otherwise restricting the plan participation of allied health practitioners, unless the law allows such limitations or exclusions.

Programs to improve the cost-effective delivery of preventive services, such as immunizations, prenatal care, or cancer screenings, and to enhance detection and cost-effective management of diseases and illnesses in children

Strikes, boycotts or work slow downs

Efforts to improve women's health care delivery


Clinical criteria relating to disease management programs and clinical guidelines


Programs to enhance or improve patient education and treatment compliance


Methods to detect and prevent health care fraud and abuse


Physician selection and termination criteria


Administrative issues, such as timing of payment


Reimbursement, if certain tests are met



Can Physicians Jointly Negotiate With Public Managed Care Plans, Such As Medicaid?
SB1468 precludes joint negotiations with Medicaid managed care plans, the new Children's Health Insurance Program, or the Texas Healthy Kids Corporation. The effect of the bill on commercial health plans will be studied over the interim.

Does SB1468 Allow "Union-Like" Activities?
No. Boycotts, strikes, or work slow downs are expressly prohibited.

Does the Act Exempt Physicians from Federal Antitrust Laws?
No. But it does provide a defense that will enable physicians to get together and participate in fair and reasonable negotiations with health plans. Physicians who enter into negotiations without the attorney general's approval forfeit any antitrust defense provided by the bill.

Prompt Pay

Building on previous prompt pay initiatives, Rep. Kyle Janek, MD, (R-Houston) passed House Bill 610 requiring health maintenance organizations and preferred provider organizations to pay "clean claims" within 45 days or specify why the claim has been denied. If a claim is partially disputed, the plan must pay the non-disputed amount within the 45 day window. To avoid confusion about what constitutes a "clean claim," the Texas Department of Insurance is required to establish a definition by rule. (TMA, working collaboratively with the Texas Hospital Association and Texas Association of Health Plans, has submitted a proposal to TDI to define clean claims to include only those data elements required by Medicare.) Any plan that violates the prompt pay requirements is liable for the full amount of the claim, less any portions already paid, plus administrative penalties up to $1,000 for each day the claim is not paid. Physicians bringing action under the law may recover reasonable attorney's fees.

Additional Requirements
Physicians may request the plan to acknowledge receipt of a claim by submitting the claim by certified mail. If a claim is paid electronically, the plan must acknowledge receipt of the claim electronically.

If a plan intends to audit a physician's claims, during the audit the plan must pay submitted charges at 85 percent of the contracted rate within 45 days. Once the audit is completed, the plan must complete payment to the physician or the physician must refund any overpaid amount within 30 days of receiving notice of the completed audit or completion of appeal rights.

Restrictive Covenants
HB 3285 by Rep. Leticia Van de Putte (D-San Antonio), another TMA-backed bill, assures that physicians who voluntarily or involuntarily leave a group practice will retain access to their patients. The bill does not prohibit restrictive covenants, but establishes mechanisms to protect existing patient-physician relationships. Specifically, group practices may not deny a terminated physician from accessing a list of his or her patients who were treated within one year of the physician leaving the practice. Upon patient consent, the group must also provide the terminated physician access to medical records in a format typically used to maintain such records. To assure continuity of care, if a specific patient of a terminated physician requires continuing treatment for an acute illness, the group must allow the terminated physician to continue that treatment. 

If a group uses restrictive covenants, the agreement must include a provision allowing physicians to buy out the clause at reasonable cost. 

HB 3285 applies only to agreements entered into on or after the effective date. 

Silent PPOs
SB 130 by Sen. Jane Nelson (R-Flower Mound) prohibits an entity from paying a physician or other health care provider at a discounted or preferred rate if that entity is not a party to the original contract or agreement.

Prescription Drug Formularies
To ensure that patients understand potential limits on prescription drug access, SB 1030 by Sen. Frank Madla (D-San Antonio) requires managed care plans to inform consumers of the use of prescription drug formularies. The plans must tell consumers how formularies are developed, how often they are revised, and the process for finding out if a specific drug is covered under the formulary. If a drug is removed from the formulary, the plan must continue to provide that drug to an enrollee as a formulary drug until the end of the enrollee's contract year. Failure to cover a drug that a physician determines to be medically necessary is considered an adverse determination under the utilization review law and is subject to appeal.

Physician Credentialing
Legislation to minimize the paperwork hassles associated with physician credentialing also passed this session. HB 3216 by Rep. Brian McCall (R-Plano) and Sen. David Cain (D-Dallas) states that the Texas State Board of Medical Examiners will be the sole source for verification of core credentials data. All credential verification organizations will be required to contact the BME to receive the following credentials: 1) name and other demographic data, 2) professional education, 3) professional training, 4) licenses and 5) Educational Commission for Foreign Medical Graduates certification. A fee will be charged to those requesting the data to cover the cost of the service.

Physician Choice
HB 1498 by Representative Janek and Sen. David Sibley (R-Waco) states that if an HMO is the only health benefit plan offered by an employer, the HMO must offer employees a product that allows full choice of physicians. This product may be a point-of-service plan, a PPO, or any coverage arrangement that allows an enrollee to access services outside the HMO network. The employee is responsible for any cost differential between the HMO and open access product. Different cost sharing provisions may apply and the employer may charge a reasonable administrative fee for providing the non-network option.

Delegated Networks
Embarking on the first attempt to set minimum standards for physician or provider-led networks, SB 890 by Senator Harris and Representative Smithee establishes standards by which physician networks perform HMO functions by delegated authority. The bill requires networks to hold a third-party administrator (TPA) license if paying claims and a utilization review (UR) license if conducting utilization review activities. Information to be provided by the network to the plan, as well as by the plan to the network, is specified in the act. If there is a dispute between the plan and the network, TDI may be called on to intervene. TDI has the authority to direct the plan to close enrollment, undertake a corrective action plan or remove all members from the network if there are significant performance problems. This bill contains a clause to sunset the act within two years. An interim project will be required to develop legislative proposals for the next session.

Pharmacy Benefit Plans
SB 1237 by Senator Nelson and Representative Van de Putte requires the TDI to develop a standardized identification card for pharmacy benefits. The bill also requires that pharmacy benefit managers have a TPA license. PBMs are prohibited from selling lists of patients through which the identity of individual patients is disclosed. It further requires that information in their possession be maintained in a confidential manner that prevents disclosure to third parties unless authorized by law or by the patient.

Complaint Processes by HMOs
Originally filed to be a technical clean-up bill, HB 3021 by Representative Smithee and Senator Sibley was amended to create a consumer advocacy department within TDI. This department is to assist consumers who have complaints regarding HMOs. It will assist with the appeals process and include help navigating the independent review procedures.

Texas Health Care Information Council
In 1995, the legislature created the Texas Health Care Information Council, a state agency responsible for developing and implementing a statewide database on health care quality and costs. In particular, the council is charged with assessing Texas HMO performance and collecting and releasing hospital-discharge data. Early in its career, controversy plagued the council, resulting in substantial revisions to its enabling statute to clarify council activities. Among the early reform measures was a TMA-supported initiative requiring the council to severity and risk adjust hospital data prior to its public release. Additionally, TMA secured language giving hospital medical staffs the opportunity to review hospital data for accuracy. 

Since 1997, however, THCIC has made great strides toward fulfilling its original charges. Additionally, the council has taken much needed steps toward increasing input from physicians and hospitals. Much of the change occurred because of the addition of several new council members, including the appointment of pediatrician Stephen Turner, MD, as chair. The new members have overcome infighting among different factions on the council and instead have worked diligently toward fulfilling THCIC statutory obligations. 

As with any new agency, however, additional legislative reforms were needed in 1999 to clarify responsibilities of the council. Unlike previous sessions, modifications to the council's original statute went remarkably smoothly, achieved through consensus negotiations among physicians, hospitals, consumers, and the council itself. HB 1513 by Rep. Glen Maxey (D-Austin) achieved the following: 

Directed the council to adopt a minimum data set for the release of hospital discharge data. The minimum data set will include data elements that have a high level of reliability, accuracy and consistency. Researchers who wish to obtain all the data collected by THCIC may present their request for study to the council's new Scientific Review Panel.

Required the council to withhold the unique physician identifiers from public release until January 2000. This will allow the council to develop more secure confidentiality measures for these codes (THCIC statute prohibits the release of information that could jeopardize the confidentiality of patients or physicians).

Required adoption of procedures to assure reliability and consistency of hospital discharge data.

Required aggregate release of physician and patient data if confidentiality could be breached.

Stipulates that any person who inappropriately releases or accesses THCIC data commits an offense that is a state jail felony.

Mandated Benefits
HB 1919 by Rep. Pete Gallego (D-Alpine) directs the speaker of the House and the lieutenant governor to appoint a joint interim committee to study the effect of mandated benefits. The bill, which was supported by TMA, specifically directs the committee to study the relationship of mandates to health plan premium costs, health care access and affordability, the number and percentage of Texans making claims for mandated benefits, and improving and maintaining health.

TDI will assist the committee in its efforts. The committee's report is due by Jan. 1, 2001.

Patient Billing
In response to patient complaints about delayed billing, HB 213 by Rep. Scott Hochberg (D-Houston) requires health care service providers, including physicians, to bill a patient or other responsible payer not later than the first day of the 11th month after the date services were rendered. If the health care service provider is required to bill a patient's health plan or another third party directly, the provider shall bill the plan within the timeframe specified by contract. If the provider does not have a contract with the health plan or third-party payer, then the provider must bill as outlined above.

The bill defines the "date of billing" as the date the provider's bill is mailed to the patient or other responsible party or submitted to the patient's health benefit plan or third-party payer.

For providers who violate the law, the bill prohibits them from recovering from the patient any amount that the patient would have been entitled to receive as payment under a health benefit plan or that the patient would have otherwise been obligated to pay. If a provider is not legally or contractually allowed to recover payment from a patient, the provider also may not recover monies from any other individual who otherwise would have been responsible for the debt.

Violations of the law are not subject to disciplinary action.

Hospital Billing
SB 830 by Senator Madla requires hospitals to develop, implement and enforce written policies on the billing of hospital services and supplies. The plan must include a policy on how to handle patient complaints. The bill further stipulates that within 30 days of a patient discharge, upon request the hospital must give the patient an itemized statement of billed services. The statement must list the date services and supplies were provided and indicate whether claim has been submitted to or paid by a third-party. If the patient is not required to make payment, the statement must prominently say so. 

Health Care Fraud Prevention
Two omnibus fraud bills were filed during the session, one at the behest of the Texas Association of Business and Chambers of Commerce and one pushed by Blue Cross/Blue Shield. Neither bill passed for a variety of reasons including the initial strident content of the bills, competition between the groups pushing the measures and a feeling on the part of the legislature that the bills were overreaching.  

Market Fairness Near Misses

Tied Products
Health plans, led by Aetna/US Healthcare, successfully blocked legislation that would have prohibited health plans from forcing doctors to participate in all of a plan's products if they participate in any of them. Arguments that the bill would allow physicians to "cherry pick" plans and refuse to participate in Medicaid and Medicare HMOs or other health plans that are more affordable for low-income Texans and the elderly confused key legislators and stalled progress. To better understand the impact of tied product contract provisions, TMA is recommending that this issue be studied further during the interim session.

Despite the lack of open opposition, several large health plans managed to lock up a bill to prohibit the mandatory use of hospitalists. HB 3111 Rep. Carlos Uresti (D-San Antonio) died in the House Calendars Committee, the entity responsible for setting bills for House floor debate. Had it passed, the bill would have prohibited health plans from requiring patients or physicians to use a hospitalist. Voluntary hospitalist arrangements would still have been allowed. TMA, together with the state specialty societies, will continue to vigorously oppose implementation of mandatory hospitalists programs. 

Market Fairness Staff Contacts
Helen Kent Davis, Governmental Affairs: (512) 370-1401
Health Care Delivery: (512) 370-1409
Rocky Wilcox, Office of the General Counsel: (512) 370-1335  


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