Point of No Return

Restitution Disappoints Doctors, Prompts Aggressive Insurers' Reaction

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Law Feature -- March 2002  

By Walt Borges    

If you think the Texas Department of Insurance (TDI) took a big step forward in late 2001 toward defusing the prompt pay issue by ordering 21 Texas insurers to pay fines and make restitution to physicians who weren't paid on time, guess again.

The agreed settlements with the insurers turned up the heat under the already percolating relationship between doctors and Texas health plans. A number of controversies and conflicts emerged:

  • TDI excused its modest fines with a public relations pitch to physicians in which TDI Senior Associate Commissioner for Consumer Protection Audrey Selden, TDI's prompt pay ombudsman, told physicians to be patient, because it was the restitution, not the fines, that would provide the bulk of the recovery. But when the first wave of companies reported restitution payments in November 2001, the total paid was $12.2 million for violations dating back to Aug. 1, 2000. The bulk of the restitution -- more than $9.7 million -- went to hospitals and other providers of medical service, while 5,754 doctors received less than $2.5 million in restitution. The payments were so low that Texas Insurance Commissioner José Montemayor ordered audits of four carriers' restitution programs, with more audits possible. In January 2002, the restitution amount swelled to $26.1 million as four companies owned by Aetna, the state's largest health insurer, completed initial restitution payments and other insurers supplemented their reports. TDI reported that as of the end of 2001, 11,686 physicians had been paid $4.6 million and 5,723 hospitals had collected $21.5 million.
  • The insurers objected to releasing the amount of each company's restitution and the number of physicians and hospitals paid, arguing that such specific information was proprietary. TDI has asked the state attorney general to determine if it can release the company-specific data, and Ms. Selden said in January that some of the plans have dropped their objections.
  • Some physicians allege that health plans responded by increasing scrutiny of claims filed by physicians to catch those that did not meet the standards of a "clean" claim and trigger the requirement that such claims be paid within 45 days. Physicians and their claims staff say that health plans began looking for ways to disqualify claims, which led to reduced restitution and to expensive revisions of computer billing programs in doctor's offices across the state.
  • Humana Inc. and the Texas Association of Health Plans (TAHP) challenged the TDI action by blaming coming premium increases on the "overpayments" made to doctors under the TDI restitution orders. Humana even said fines and overpayments imposed on 17 insurers could have covered more than 8,000 uninsured Texans, characterizing the payments as "windfall profits for doctors and hospitals."
  • The prompt pay issue became a front-burner issue in the Democratic gubernatorial primary when Tony Sanchez promised to back prompt pay legislation to increase TDI's enforcement powers and to appoint a physician to oversee that enforcement. (See " Politicizing Prompt Pay.")

For physicians, the bottom line was little or no restitution, say Texas Medical Association officials.

"Most physicians feel that the restitution settlements are woefully inadequate," said Robert Gunby, MD, chair of TMA's Council on Socioeconomics.

The problem with the TDI's restitution plan was that it was left to the health plans to determine and administer the payments, Dr. Gunby explains.  

"It's like leaving a fox to guard the henhouse," Dr. Gunby explained. "They [health insurers] decide what they will pay and when they will pay, and when they are caught, then they decide what clean claims are."

Enforcement and Payments  

TDI announced the first wave of enforcement actions on prompt pay on Aug. 1, 2001, against 17 insurance companies and health maintenance organizations (HMOs) owned by seven major health care corporations. Each corporation was fined $1 million for late payment of clean claims and $250,000 for failing to carry out statutory requirements of paying 85 percent of a claim when an audit was required. Other fines were levied on some companies for not maintaining accurate complaint records and not monitoring the compliance and financial performance of delegated networks responsible for paying the claims. (See " Prompt Pay Enforcement Actions.")

The $10.4 million in fines were levied, Commissioner Montemayor said, after the insurers failed to pay on time "even after the passage of legislation, the revision of the agency's regulations, and strong warnings by the department."

Critics of the TDI action pointed out that the insurers could have been fined $1,000 per claim per day late, and faulted TDI for allowing restitution to be negotiated. By law, restitution is set at the contracted penalty rate or at the amount of billed charges for prompt pay violations.

Ms. Selden attended several TMA meetings and told physicians the fines were not the major stick being wielded by the regulators. She asked physicians to withhold judgment of the fines until restitution was paid by the end of October. Reports on the payments were due from insurers by Nov. 15.

When those reports were turned in, some insurers asserted that the information was proprietary business information exempted from disclosure by the Texas Public Information Act. When TDI finally released the information on Nov. 29, it did so only in an aggregate form.

Commissioner Montemayor announced he was seeking an attorney general's opinion supporting the release of company-by-company data, and he expressed disappointment that the restitution was not greater. "Health care testimony and anecdotal evidence suggest that this amount should be significantly higher," he said.

Some physicians complained to TMA that they received restitution in a lump sum without adequate information to allow them to determine which claims had been paid.

Ms. Selden said in January that TDI's expectation of greater restitution was based on conversations with numerous physicians, claims payment data for contracted physicians and hospitals, and complaints.

"We understood that not all physicians and providers had filed clean claims," Ms. Selden said. "This was evident from provider complaints filed at TDI. We held workshops for physicians and providers as well as the industry to educate these groups regarding the prompt pay statutes and clean claim rules."

The prompt pay ombudsman said that Texas doctors have submitted claims from self-funded plans that are subject to the Employee Retirement Income Security Act (ERISA). Those claims are not addressed in the consent orders, Ms. Selden said. "Truly self-funded plans [those plans in which employers assume the risk for losses] are not subject to the prompt pay statues and clean claim rules," Ms. Selden said.

TMA officials disagree with TDI's assertion that state prompt pay laws are necessarily excluded from applying to employer-funded ERISA plans. They cite a recent federal court opinion that prompt pay involves contract disputes that are not pre-empted by ERISA from consideration in state courts.

On Nov.1, TDI announced a consent order settlement with four companies under the Aetna corporate banner that provided for another $1.15 million in fines, plus restitution. The payments to physicians and hospitals were to be made by Dec. 31, 2001, with reports on the payments submitted to TDI by Jan. 15, 2002.

The restitution reports for the Aetna entities were submitted on time, but Aetna made the same claim to confidentiality that the other companies had made. A decision on the public nature of the information submitted by the first 17 companies was due from the attorney general's office by Feb. 1.

Physicians shared TDI's disappointment in the amount of the first wave of restitution payments.

"What we expected in terms of restitution is many hundreds of thousands of dollars," said Phil Russell, chief executive officer of South Texas Radiology Group (STRG) in San Antonio. "We received less than $2,500."

Mr. Russell estimates that one payer, which he declined to name, owes the group about $300,000. "They have not paid us a cent," he said.

That insurer paid 17 percent of the STRG's claims late, Mr. Russell says, and another paid 5 percent of the claims after 45 days.

Mr. Russell says he is frustrated by insurers that fail to live by the spirit of the prompt pay law. "The intent of the legislature was based on having insurers pay physicians within 45 days, or to tell them why not. What we've seen is that they don't do either."

BCBS Texas "paid $6.4 million in restitution to 1,999 physicians and hospitals," said Pat Hemingway Hall, the company's president. Ms. Hall says the company did not negotiate restitution with its contracted doctors. Restitution was accompanied by a summary, which included claims, subscriber identification, and subscriber group numbers to allow the physicians to identify and post the checks, Ms. Hall says.

BCBS Texas offered TDI access to its restitution records for an audit, but Ms. Hall said on Jan. 15 that the company was not aware of any TDI scrutiny.

Ms. Selden said the audits were ongoing, but she would not discuss specifics.

Confidentiality Pleas  

Ms. Selden says TDI believes the records of the restitution are public but must seek an attorney general's opinion because of the insurers' claims the information is confidential.

BCBS Texas was among the insurers that requested confidentiality. "We have objected to the release of our specific restitution payments asserting, among other reasons, the proprietary and confidential nature of these payments," Ms. Hall said in answer to written questions from Texas Medicine .

TDI lawyers pointed out in a brief filed with the attorney general that "the prompt pay restitution reports reveal nothing more than the extent of each company's failure to comply with the clean claims law and the extent to which the company has made restitution for that failure. The failure to comply with clean claims statutes and rules should not be viewed as a means of obtaining a competitive advantage."

Because the public already knew of the failure of the insurers to pay promptly, the aggregate figures of restitution paid by each company "would not result in competitive harm," the TDI lawyers wrote.

But Leah Rummel, TAHP executive director and a former TDI regulator, says the request to withhold company-specific restitution information was made because insurers view the information as proprietary. Pressed on how the information could be used, she said the insurers "are basically releasing the rates they pay to physicians."

But TMA staff and TDI officials say far more information would be needed to calculate rate schedules or penalty rates. Specific payments for particular treatment codes and the number of codes paid would have to be calculated to determine payment or contracted penalties.

Dr. Gunby says the dispute is not a hollow one because physicians should consider prompt pay issues when evaluating their contracts with insurance companies for renewal. "Specific data on a company-by-company basis would help doctors decide whom they should contract with," he explained.

Crackdown on Clean Claims  

Marjorie Thomas, office manager for David E. Rogers, MD, a member of the TMA Council on Socioeconomics, said Dr. Rogers' office "received zero in restitution, and we have received no notices of restitution from the plans."

Instead, the plans have tightened up clean claims scrutiny to avoid paying claims that have information missing, even if such information is irrelevant to the validity of a claim.

"The devil is in the details," said Ms. Thomas, citing an exchange with BCBS Texas in which Dr. Rogers, a gynecologist, questioned the necessity of filling out boxes on claim forms that ask for current illness dates and the dates of similar incidents. The boxes are numbered 14 and 15 on the standard form used for submitting claims.

"We leave those boxes blank on the claim form unless it's an accident or pregnancy," Ms. Thomas said. "For HMOs and many health plans without exclusions for pre-existing conditions, this information is not relevant."

What bothers Ms. Thomas and Dr. Rogers is that BCBS Texas routinely paid such claims despite the missing date before they were hit with prompt pay fines. After the crackdown, the situation changed.

"My question is whether this is the retribution physicians were hit with because Blue Cross Blue Shield was hit with fines," Ms. Thomas asked.

BCBS Texas says the answer is no. Before the prompt pay rules went into effect, the company routinely requested information from providers that would have been contained in boxes 14 and 15. Moreover, with the implementation of the new prompt pay rules, the company says it requires boxes 14 and 15 to be completed only when that information is relevant to claims payment.

Ramona Bogard, director of managed care for North Texas Heart Center in Dallas, says her 23-doctor cardiology group got a welcome surprise when it received some payments.

"We received a smattering of restitution from Aetna, BCBS, and Humana, and we were surprised," Ms. Bogard recalled. "We weren't filing claims with boxes 14 and 15 filled in."

Mr. Russell says his radiology group usually cannot make an extensive effort to secure insurance information if the hospital staff neglects to obtain the information.

"There is no desire on the part of the hospital or us to submit patients to multiple people to get the information necessary to submit a clean claim," he said. "It used to be that a hospital would gather the information of who the patient was, where he or she lived, and the type of insurance. That has been good enough for many years, but when they are scrutinized for failing to pay a claim promptly, the insurers now want to point to a blank data field that is not relevant to the claim."

The extent to which the clean claims crackdown by insurers reduced prompt pay restitution is not certain, and nobody, including TDI, can estimate the impact of clean claims scrutiny. In fact, even the guesses by insurers vary widely.

Dr. Gunby says PacifiCare officials told him late last year that 96 percent of the claims filed by physicians are not clean.

On the other hand, Ms. Hall of BCBS Texas says "over 99 percent of all our claims are paid within 45 days, although many do not meet the clean claim requirements."

Finger Pointing  

Nothing has turned up the heat on the enforcement of prompt pay rules more than a press release issued by Humana on Dec. 21, 2001.

The company, which says it insures more than 500,000 Texans, said the $2.1 million in restitution it paid physicians and hospitals was "overpayments" and was "above their legally contracted rates for providing care to health plan members." Those overpayments provided "windfall profits for doctors and hospitals," according to Gary Goldstein, MD, chief executive officer of Humana's Central Texas region.

In response, Commissioner Montemayor told the Houston Chronicle that "physicians and providers who have not been paid for their services would disagree with the characterization that honoring the contract penalty and statutory requirements is an 'overpayment' and a 'windfall' to the medical profession. Had Humana paid the claims timely and fully implemented the prompt pay statutory requirement, it would not have been subject to an administrative penalty and restitution."

In the press release, Humana officials emphasized that Humana paid 96 percent of its clean claims on time, and complained that Texas' prompt pay law required 100 percent compliance with the law. Other state laws and the federal government, the Humana press release said, require only 95 percent of the claims be paid on time.

The restitution represents less than 0.2 percent of more than $1.07 billion Humana paid to Texas physicians in 2001, the company said, suggesting that the TDI enforcement action was "driving up the profits of health care providers." Dr. Goldstein also estimated that the total fines and restitution levied against the 17 companies sanctioned in the first wave would have covered more than 8,000 uninsured Texans.

BCBS Texas' Ms. Hall said her company does not consider restitution to be overpayments, but simplyregards them "as additional claims payments. The payments to TDI are recorded as other expenses, not claim related."

TMA's Dr. Gunby said the prompt pay enforcement actions by TDI have taken a toll on negotiations between TMA and health plans. "It has caused a change in the relationship, and there's been a change in personality," Dr. Gunby explained." It's now more contentious than it has been." 


Politicizing Prompt Pay

The prompt pay issue became contentious fodder in the 2002 governor's race in January. Physicians already were upset with Governor Rick Perry's veto of the prompt pay revisions in House Bill 1862, and Democratic gubernatorial candidate Tony Sanchez seems poised to take full advantage.

On Jan. 12, Mr. Sanchez, a Laredo banker, vowed to pass new prompt pay legislation and reform the TDI structure to make it more responsive to the concerns of doctors and patients.

"It is clear that we must pass new prompt pay legislation because the insurance commissioner does not now have the statutory authority to implement appropriate protections for patients and doctors," Mr. Sanchez told a group of physicians.

The candidate said he "will put an end to the slow-pay, low-pay, and no-pay stalling tactics of insurance companies and HMOs so that physicians can concentrate on what really matters -- their patients' health."

Among Mr. Sanchez's proposals for reforming TDI is a promise to appoint a physician as deputy insurance commissioner with strict enforcement powers for prompt pay violations. Mr. Sanchez said he would work to put his reforms into law to prevent future governors or insurance commissioners from bowing to pressure from the insurance industry to weaken the enforcement measures.

Mr. Sanchez's chief rival for the Democratic nomination, former Texas Attorney General Dan Morales, also has brought up managed care in his speeches, reminding voters that he filed suits against HMOs before leaving office in 1998. The suits, which were aimed at curtailing denial of care, were not pursued.

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Prompt Pay Enforcement Actions

Fines and Restitution  


Insurer   Fines   Restitution  

Blue Cross and Blue Shield of Texas
Rio Grande HMO
Southwest Texas HMO
Texas Gulf Coast HMO

$1.5 million

$6.4 million


One Health Plan of Texas Inc.              
Great-West Life & Annuity Insurance Co.         Alta Life & Health Insurance Co.

$1.5 million



CIGNA Healthcare of Texas                            Connecticut General Life Insurance Co.

$1.25 million



Humana Health Plan of Texas Inc.                   Humana Insurance Co.
Employers Health Insurance Co.

$1.25 million

$2.1 million


Sierra Health and Life Insurance Co.          Texas Health Choice

$1.25 million



Unicare Life & Health Insurance Co.

$1.25 million



United Healthcare Insurance Co.                     United Healthcare of Texas Inc.

$1.25 million



Aetna Life Insurance                                    Aetna US Healthcare Inc.
Aetna US Healthcare of North Texas Inc.      Prudential Health Care Plan Inc.

$1.15 million




$10.4 million  

$26.1 million  

Restitution Payments

Restitution   Amount  

11,686 physicians

$  4,591,558


5,723 hospitals and other providers



Total restitution  


* Have not released data on restitution. Together, these companies paid more than $17.6 million.

Source: Texas Department of Insurance

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