Testimony by Patricia Kolodzey
Associate Director, TMA Legislative Affairs Department
House Committee on Insurance
March 30, 2016
Interim Charge # 3:
Evaluate the statutory penalty calculations under Texas's prompt payment laws regarding health care claims. Include an analysis of whether the proper benchmarks are used to establish penalties commensurate with an improper payment and the effect of the abolition of the Texas Health Insurance Pool on the use of funds collected under the statute.
Good morning, Chairman Frullo and members of the committee. My name is Patricia Kolodzey, and I am the associate director of legislative affairs for the Texas Medical Association (TMA). I am here today representing TMA and its more than 49,000 physicians and medical student members. Thank you for the opportunity today to offer some insight and history about why Senate Bill 418, Texas' prompt pay law, was needed in 2003 and why the penalty structures in this law remain so important to physicians today, more than a decade later. Insurers and health maintenance organizations (HMOs) must continue to be motivated to pay claims timely and correctly, and more importantly, held accountable when they pay clean claims late or incorrectly or fail to pay claims entirely.
As recently as 2014, TMA's annual physician survey showed that health plan hassles and prompt pay still fell into the top five legislative priorities for Texas physicians.
Important Background - A history of serious payment abuses by insurers/HMOs (i.e., late payments, incorrect payments, and failures to pay entirely)
As far back as the late 1990s, physicians began documenting payment delays and incorrect payments by insurers/HMOs, and it was found that insurers/HMOs were extremely abusive in their payment-delay tactics. Acknowledging the magnitude of this problem, lawmakers filed and passed prompt pay legislation in both 1999 and 2001: House Bill 610 by then-Rep. Kyle Janek was signed by the governor in 1999, and in 2001, House Bill 1862 by Rep. Craig Eiland was vetoed by the governor. Despite the passage of HB 610 in 1999, the insurers were able to avoid late-payment penalties by taking advantage of the bill language, which allowed either the penalty rate agreed to by contract or the billed charge if the contract was silent about late payment penalties. Since health plan contracts are often of a "take it, or leave it" nature and contained standard late-payment penalty language of minimal percent per annum, HB 610 did little to motivate insurers to pay claims timely. In addition, because the elements of a clean claim were not clearly spelled out in statute and had not yet been defined by rule, the health plans took advantage of physicians and providers by changing up the clean claim requirements, rendering the claim "unclean" and ineligible for any penalty payments when paid late or incorrectly. By doing this, they essentially absolved themselves of any penalty payments.
In 2003, Senate Bill 418 (R-78) was authored by Sen. Jane Nelson and six Senate coauthors. In the House, it was sponsored by Rep. John Smithee with four joint sponsors and 108 cosponsors. Supported by Republicans and Democrats alike, it passed overwhelmingly on the floor of both chambers. SB 418 provided for:
- A statutory framework for the definition of a clean claim;
- Statutory timeframes for both the submission and the timely payment of physician, pharmacy, and health care provider claims;
- Certain provisions that cannot be waived, voided, or nullified by contract;
- The graduated penalty structure that was intended to create a disincentive for late or incorrect payment by insurers/HMOs; and
- The Texas Department of Insurance to order administrative penalties in addition to prompt pay penalties for failure to meet the statutory requirements.
The examples below illustrate some of the prevalent payment abuses by insurers/HMOs prior to 1999 and why physicians and other health care providers continued to pursue the meaningful prompt pay penalty legislation we have in Texas today.
Example 1- The insurers would oftentimes make repeated requests for additional information that was already provided, or the insurers would simply not pay claims for six months to a year under the guise of investigating the "possibility of a preexisting condition" exclusion or the possibility of other coverage being the primary payer. The insurer/HMO would use these excuses even after both the patient and the physician had documented that neither was the case AND the insurer had approved the services in advance. Essentially, there was no reason for the insurer's failure to pay and no reason for the insurer to continue to question the legitimacy or medical necessity of the claim that the insurer, itself, had authorized.
Example 2 - Another tactic was that some insurers would cut the contracted payment in half, with no explanation provided as to why they had made such an incorrect underpayment. The insurer/HMO would then sit back and wait for the physician to appeal through the insurer/HMO's arduous and time-consuming internal appeal process.
Prior to 2003, it was also found the insurers were making quite a bit of money off of the "float" between the time from receipt of premiums and payment of submitted claims. This float was the result of the accumulation of dollars that were related to the unpaid or delayed-claim tactics insurers were using. This lack of timely claim payment by the insurers resulted in a good number of physicians (especially individual and small group practices) reporting to TMA that they were having to take out personal loans or second mortgages to cover their office overhead and to meet support and clinical staff payroll due to the impact of these unpaid claims on their accounts receivable. In other words, the doctors were extending credit to the insurers for money that was actually owed to them during the time the claims remained unpaid.
The 2014 TMA physician survey shows that even more than a decade after the passage of prompt pay legislation, 61 percent of physicians who took the survey experienced cash flow problems due to slow payment, nonpayment, or underpayment of claims by insurer/HMOs or government payers. The chart below illustrates how this trend actually increased from 2004 to 2014.
Some of the actions that physicians reported taking to deal with the cash flow problems resulting from these insurer/HMO payment delay tactics are:
- Reducing staff,
- Drawing from personal funds,
- Reducing services to patients covered by government payers,
- Terminating/Renegotiating contracts,
- Securing commercial loans, and
- Closing/selling the practice.
Physician practices, whether they are a solo practice or a small/large group practice, are all businesses, and as such, they are a source of employment in the communities they serve. The legislature should not expect them to reduce staff, draw from personal funds, or secure personal loans to meet practice overhead and oftentimes payroll -especially when these dire circumstances are the result of the failure of very profitable health plans loading a physician's contract incorrectly, or not at all for that matter, including incorrect payment edits/audits.
The following chart illustrates how this question has trended over the past decade. The graph also shows that of the physicians who experienced cash flow problems due to slow payment, nonpayment, or underpayment, 44 percent s were forced to reduce staff, and 40 percent had to draw from personal funds to cover current practice operations.
Below are more recent real-world examples of inaccurate claim payment activities that physician practices have experienced:
Example 1 - Insurer paid the claims but didn't pay the correct amount due to a claim payment edit the health plan incorrectly loaded, which caused the incorrect and inappropriate denials.
The denied procedures were vaccine administration. Vaccine administration is reported per vaccine/toxoid component. A component is defined as each antigen in a vaccine that prevents disease(s) caused by one organism. Combination vaccines are those that contain multiple vaccine components. You may report multiple units of the vaccine administration code for each first vaccine/toxoid component administered. For example, a child is seen for his yearly physical and is due for his flu vaccine, Tdap vaccine (a combo vaccine for tetanus, diphtheria, and pertussis), and an HPV vaccine. The physician bills for the vaccines and for administering the vaccine components (a total of five components).
The health plan loaded an edit in its system that denied the vaccine administration if billed for four or more units. This edit was incorrect, as the Centers for Disease Control and Prevention guidelines say the edit should allow up to nine units. The physician's office pointed out the error to the plan, but was told initially there was nothing the plan could do to rectify the payment. The plan told the physician office to appeal the affected claims, which the physician office did, only to have the appeals also denied. Not until the TMA became involved did the health plan make any attempt to correct the edit and start making correct payments.
The error was discovered and reported almost three months after the plan loaded and implemented the incorrect edit. It then took the plan an additional two months to correct the edit in its system. During that two months, the plan had to manually adjust all vaccine claims so they would pay correctly the first time the plan received them. In addition, the plan still had to reprocess the three months of incorrectly paid claims, which totaled more than 4,000 claims.
Status: At this time, to the best of our knowledge, the plan has paid no penalties.
Example 2 - The health plan paid claims but sent the payment to patients instead of the contracted physician.
A contracted physician noticed a sudden decrease in payments from a specific health plan despite a large portion of his patients being insured through the health plan. Upon further investigation, the practice discovered that the health plan had been sending some of the physician's payments to the patients instead of to the physician, which is in violation of the physician's contract. The contract between the physician and the health plan says the health plan will pay the physician for services that are a covered benefit provided to enrollees. The physician worked with the health plan to determine why some payments were sent to patients in error. The health plan agreed to reprocess the claims and send the payments to the physician. The physician notified the plan approximately 60 days after the problem was discovered. The plan did not start sending payments to the physician until well over 90 days from the date of notification.
Status: Physician has an open complaint with the Texas Department of Insurance (TDI).
Example 3 - The health plan failed to pay claims for a contracted physician.
A contracted physician saw a patient covered under a health plan, and the plan was subject to prompt payment requirements. The physician billed claims for the services to the health plan. The health plan denied all the claims, stating the patient did not have coverage. The physician had written proof from the health plan's website that the patient did have coverage. After working with the health plan, TMA found that the health plan had not loaded the patient correctly in its system. The health plan finally added the patient and reprocessed the claims. The timeframe between when this was discovered and reported to the plan and when the plan reprocessed and paid the claims was more than 90 days.
Status: The physician did not receive penalties payments and has an open complaint with TDI.
It is important to stress to the committee - all of the physician offices in the above three examples had been working for at least a month, if not longer, on these payment issues. Prior to contacting TMA, these offices had appropriately pursued all the channels required of them by their health plan agreement, such as providing notice to the health plan, reaching out to the health plan provider representative for assistance, and using the health plan appeal process. Unfortunately, these avenues were all unsuccessful.
The 2015 Legislature and House Bill 1433
The purpose of House Bill 1433 by Representative Smithee in 2015 was to strike a balance between encouraging insurers to comply with their statutory duty to pay claims timely without excessively incentivizing plaintiff attorneys and others to pursue awards that may be perceived as windfalls. TMA worked with the health plans last session to maintain meaningful remedies for physicians for incorrect, late, or improper denial of payment. The bill last session did preserve a physician's billed charge as the payment penalty for the most egregious claim payment tardiness (90 days) by health plans. The health plans conveyed to TMA that it was not the billed charge penalties paid to physicians that they were seeking to change.
Prior to the 2015 session, the majority of the lawsuits seeking penalties were being brought by large hospitals and hospital systems, who have the ability to pay for the legal manpower necessary to pursue the penalties - and since the late payment penalties paid to hospitals are based on the hospitals' billed charges, those litigated recoveries can be in the millions, which can result in significant contingency payment amounts for lawyers and recovery firms.
It is important for the committee and members of the legislature to recognize that not all attempts to recover payment under the current statute (SB 418) can be portrayed as "frivolous" because many successfully litigated recoveries by hospitals and physicians have been found to be valid and the insurer at fault.
Is A Change in Law Needed to Address Penalty Concerns?
This is an important question to ask, primarily because the ability of the insurers/HMOs to lessen their exposure to litigation and the prompt pay penalties for the most part lies within the insurers' control (e.g., their own contract terms and their claim payment systems.) To lessen the likelihood of ever reaching the maximum penalty of billed charges, there are several adjustments they can undertake without any legislation:
- Simply pay the claim timely, and certainly well before the 90 days that trigger the billed-charge penalty. The purpose of the graduated penalties in current statute was to allow the plan to have more than one chance to pay the claim before it would be hit with the most significant penalty in the form of billed charges.
- Limit their use of "carved out" services when possible in contracts. These carved out services usually are those not included in some agreed-to "bundled" or "case" rate. These carve-out contract terms often require the health plans to manually review even electronically submitted claims before they can make payment.
- Raise the dollar threshold for claims that trigger an edit, which places these claims in a pending or "purgatory" status. Claims' pend status often negates their ability to be paid automatically because they usually require review by a human, subsequently increasing payment timeframes.
- Limit the use of "in-house" or "plan specific" coding and bundling edits that deviate from nationally recognized and generally accepted edits and logic. Current law requires that health plan claim payment processes be consistent with nationally recognized, generally accepted bundling edits and logic.
- Make conditional payments, if they know they have a major system glitch that will take them some time to rectify. Not the best way to do business, but it allows them to meet payment timeframes and avoid penalties.
Possible Alternatives for the Prompt Pay Penalties Funding the Texas Health Insurance Risk Pool
In 2007, House Bill 2064, authored by Rep. John Smithee and sponsored by Sen. Kip Averitt, required portions of the prompt pay penalties to go to the Texas Health Insurance Risk Pool (THIRP) to offset some of the premium expense for Texans buying into the high-risk pool and unable to buy insurance elsewhere. Since the abolition of the risk pool, TDI no longer needs penalty payments for that purpose. Provided that prompt pay penalties are preserved at their current level, they could possibly be used to:
- Pay for statewide public service announcements that educate the public about the various types of health coverage, the importance of having a primary care physician, the impact of networks on a consumers' out-of-pocket payment responsibility, what questions to ask when having surgery, and how to review a hospital bill, to name just a few topics;
- Enhance graduate medical education funding; or
- Similar to the premium assistance the penalties afforded to the risk pool, use the penalty funds to "buy-in" to the Medicaid program for certain expansion populations if approved by the legislature.
Thank you for the opportunity to testify and provide our perspective. I will be happy to answer any questions.
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