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Surviving Managed Care^© Newsletter

Volume 3, Number 1 Spring, 2001

Vision and Eyecare Business Information For The Millennium

Objectives:

To review and understand recent efforts by state legislatures and regulators to stem a troubling increase in late or reduced claims payments by insurers; to examine how one state is trying to facilitate amicable and timely settlements of payment disputes; to assess how a recent court decision may change the requirements by which healthplans can terminate provider agreements in years to come.

  Fighting Back In The Battle Over Late And Downcoded Claims Payments

It's no secret that a lot of practices around the country are having difficulty collecting on the claims they're submitting. For some the problem is getting paid in a consistent, timely manner. For others it's an on-going problem with downcoding — being paid at a service level lower than indicated on the claim. And for the most unfortunate it's both at the same time.

A System Running Wild

Until about mid 1999 most practices essentially were subject to the capricious payment decisions of healthplans. Though reimbursement terms might be specified in a provider agreement or even written into state law, that hardly seemed to matter. Many healthplans routinely ignored payment requirements and flaunted regulatory authority. And they did so with impunity, for there was little or no downside risk to the plan.

In those few instances where a regulatory body fined a plan, they were mere slaps on the wrist. For example, Modern Healthcare reported (6/21/1999) that New York insurance regulators had fined 16 health plans, including 10 repeat offenders, a total of $188,000 for violating the state's prompt payment law. Such small fines were easy to ignore — hardly blips on a healthplan's radar screen. And physicians in New York, stuck with receivables extending out 90, 120, 150 days or more, were left wondering what happened to the protection they were supposed to enjoy under their 1998 prompt payment law. This was a common scenario nationwide.

Regulators Awaken to the Magnitude of the Problem

Then, in late 1999 and early 2000, a few state authorities started to flex the muscle given them by their respective legislatures. Insure.com reported that in early 2000 the Georgia Insurance Commissioner fined United Healthcare $123,500, and Principal Health Care/Coventry $262,700 (later reduced to $201,000).

In New Jersey the Bergen Record reported on April 1, 2000 that Oxford was fined $275,000, and United Health Care $127,400. That same month the Maryland Insurance Commissioner announced that United Health Care had been fined $400,000 ($150,000 stayed), Aetna $225,000, and Magellan $300,000 ($150,000 stayed). And in a blockbuster announcement from the state that previously had only slapped healthplans on the wrist, New York fined HealthNow $500,000 on July 31^st (AMNews, 9/18/2000).

Where previous penalties were little more than financial irritations, essentially swept under the carpet and hidden or trivialized within an annual report, now healthplans had reason to start paying attention. Violations of state laws resulting in multi-hundred-thousand dollar "hits" to the bottom line couldn't be dismissed as just another cost of doing business.

Certainly it's too early to tell if these fines will cause sweeping changes throughout the industry. Obviously, healthplans won't want to pay fine after fine. So we should start to see some improvements with claims payments in the short term, particularly in those states where the insurance commissioners are playing hard-ball.

For example, Georgia's Commissioner, John Oxendine, stated (quoted in AMNews, 9/18/2000) It's unfortunate sometimes the only way you can get people's attention is to hit them in the pocketbook. Fining somebody doesn't help me or anybody. I don't know of any other way to enforce responsible conduct. What I want is compliance.

I spoke with some Georgia practice administrators in November 2000 and was told that Oxendine's strong enforcement policies are changing things for the better in that state. In the long term let's hope that this sense of enforcement authority and responsibility becomes commonplace in the other states, and that all providers will be paid in a more responsible, timely, and accurate manner.

An Interesting "Twist" to the Problem of Who's Responsible to Pay On Time

In many instances physicians are contracted to Independent Practice Associations (IPAs) and not directly to the healthplan. In those instances the physician looks to the IPA for payment. But then when that IPA is consistently late paying, or consistently pays an amount less than due based on the claim, what happens? Who is responsible?

Often, IPAs are not under the same regulatory authority as the healthplans. And if they are under the same authority, typically they're not held to the same standards. That's too often left physicians holding an empty accounts receivable bag.

Several states are starting to address this problem, and we're seeing two general scenarios unfolding. Both put final prompt payment responsibility squarely on the shoulders of the healthplans. And in that there's plenty of controversy.

Some states (e.g., New York) are looking into affixing similar prompt payment standards on the IPAs. They'll do this, in part, by implementing regulations focused on risk transfer issues — making certain that IPAs are financially solvent before allowing them to contract with healthplans (e.g., mandating larger risk reserves). The proposed regulations would also mandate that HMOs must ensure that their contracted IPAs pay the sub-contracted physicians within the time frames specified in the healthplan prompt payment laws.

As you might imagine the HMO industry is fighting mad about this one. The HMOs argue that if they've paid an IPA's claims on time then the plan can hardly be held accountable if that IPA is at fault for not promptly transferring the money to its physicians. In fact, AMNews (8/14/2000) reported that in June 2000 New York healthplans sued the state to stop implementation of the regulations described above.

The other scenario revolves around financial responsibility when an IPA collapses and goes out of business. In that case no claims are being paid. Here, states are taking different positions on fixing ultimate responsibility for unpaid claims.

In Maryland, United Healthcare was ordered to pay physician claims and accrued interest on behalf of three closed IPAs. But in a similar situation in California a suit brought by the California Medical Association was rejected by the state Superior Court.

Just how this all shakes out state by state will be one of the key reimbursement issues over the next few years. Clearly, physicians and administrators need to be careful in their contracting arrangements, and especially careful to monitor their monthly receivables to preclude getting caught in an extended period of slow payment, under payment, or no payment.

So what can you do today in your practice to minimize chances of being caught in one of these financial black-holes involving slow payment and/or downcoding? Here are a few ideas.

Suggestions

These are the three most important and effective steps you can take to protect your interests and maximize chances for prompt and accurate payment of your claims:

1)    Negotiate/amend your provider agreements to include a definition of "clean" claim, to specify exact payment time limits for uncontested claims, and to impose a penalty if claims are not paid in the stated time.

Reference any state claims settlement act (prompt pay law) as the outside limit for you to receive full payment. So, for example, if you were in one of the states mandating 15 day claims settlement you would not agree to a provider contract that specified the healthplan had 30 days to pay. (Why would you agree to let the plan have extra time to pay when your state law has set 15 days?)

You also want to have a tight and specific definition of "clean" written into the agreement so that the plan cannot arbitrarily delay payments by declaring claims faulty for one reason or another. And you want to insist on payment penalties to put the plan on notice that it's expected to follow the letter of the contract. (Any plan that won't discuss late payment penalties is waving a yellow flag in your face.)

2)    Use electronic billing to minimize manual data entry errors, and be certain that all physicians and staff know the submission requirements for each plan (e.g., exactly what must be documented to substantiate and differentiate a level 3 from a level 4 claim).

The key matter here is to be certain that the plan or its designated outside claims review agency can't say you did not file the claim with all the necessary information to justify payment, or to justify payment at the submitted level. Also, filing electronically speeds-up the process and reduces the chances that your staff will leave a field empty or fill a field with the wrong or incomplete information.

3)    Know your rights under state law.

Document every instance of claims unduly delayed, denied, or downcoded. And report repetitive abuses to your elected representatives, to the Department of Insurance, and to your state and local medical and ophthalmology societies (your strongest allies in state politics).

Still, you may have done all you could, but you remain in the middle of what seems to be an unresolvable financial dispute. Well, here's how one state, Florida, is trying to make things "right" when resolution seems impossible.

  Resolving HMO/Physician Payment Disputes

Traditionally, when a physician had exhausted all of his or her contractually- specified means of dispute resolution, that physician's only avenue to resolve a financial dispute was through a suit. Obviously that meant considerable legal costs for the physician — costs such that there had to be a huge amount in dispute to make filing a case worthwhile. And so physicians with a few hundred or a few thousand dollars in dispute were really left without any viable means to contest a plan's stubborn refusal to pay.

Alternate Dispute Resolution

Realizing that physicians were always at considerable disadvantage when facing insurers, Florida recently set into motion a mechanism to level the playing field and allow the parties a quick, affordable means to resolve seemingly unresolvable payment disputes. Assuming the program is not sidetracked from its January 1, 2001 implementation date, here's how it will work.

Florida's Agency for Health Care Administration will establish the program rules and guidelines, and it will select a group of arbitrators. When a physician requests arbitration through this state agency, the HMO must participate. (Similarly, if an HMO feels it has overpaid the physician that plan can use the same vehicle to challenge the physician for repayment.)

Costs for the arbitration will be paid by the unsuccessful party. However, if the "winner" is awarded less than the amount requested, then the costs may be pro-rated in some manner. The Agency will have the power to make final determinations on the arbitrators' recommendations and decisions, and can obligate the financially responsible party or parties to settle within 35 days.

Massachusetts has a similar program set to go on-line January 1, 2001.

  California Supreme Court Decision on "Termination Without Cause"

Here's an all-too-common scenario that's been occurring around the country, sometimes with devastating effect on medical practices.

"Dear Doctor"

You've been a contracted provider to the ABC healthplan for eight years. You've cared for its patients, submitted your claims in a timely manner, followed all the rules regarding prior authorization or required referral, and kept your nose clean. You've built a significant and loyal following of ABC's patients by providing quality care, and your practice gets high marks for patient satisfaction on every survey you conduct. Then one day the letter arrives.

It's the dreaded "Dear Doctor" letter that announces you're being terminated effective in 60 days or, perhaps, at the contract anniversary date. The letter is short and to the point, thanking you for providing care to the plan's members but giving you no explanation for the plan's actions. All you're told is that the plan is ...exercising our right to terminate this agreement without cause per section "xyz" of the provider agreement.

Your administrator runs some numbers and you realize that your contract with ABC is even more important to the practice than you had thought. ABC's patients generate a considerable portion of your monthly revenues, so this is a contract you don't want to lose. Realistically, you can't afford to lose it since you've become almost dependent upon this contract — "economically tied" is the term. Unfortunately, that's made your practice very vulnerable.

Your phone call to the Provider Relations department is not returned, or if it is returned the answer is wishy-washy. Perhaps you're told We've decided to downsize our panel. But when you ask for the specific reason why your practice was chosen for de-selection there is none, or it's an empty answer.

You try moving up the corporate ladder, calling the Provider Relations Director, or the plan's Executive Director, or the Medical Director. Again, you get no response or, perhaps, you're told We did a careful analysis of our provider panel and decided to contract with other ophthalmology groups. That response only leaves you frustrated and increasingly concerned that you're not being dealt with fairly (particularly when you do a little research and learn which providers in the community were not de-selected).

If a contract represented only a very small slice of a practice's business, the "Dear Doctor" letter has typically been a disappointment but not a knock-out punch. Most physicians let it go and moved on — that was just part of managed care. But for the practice with a significant investment in a contract, without-cause terminations have been devastating.

But there is an even more significant concern than the financial consequences of one lost contract. If you are terminated by a healthplan then you must report that fact on all subsequent applications for other plans. (The termination follows you around like a black cloud, in the same manner as a bankruptcy.) The fact that you were terminated might even cause you to be dropped from current agreements with other HMOs, IPAs, networks, etc. And so there can be a compounding, adverse effect that cascades down through your entire book of managed care business.

So what is there to do? How does a practice survive the "hit"? What rights do physicians have when they're terminated for seemingly capricious reasons, or for no reason at all?

Bringing Fairness and Due Process into the Equation

Sadly, to date there's been precious little protection for providers. Termination without cause meant exactly that — the healthplan could drop the doctor at its sole discretion. And the doctor was not entitled to any explanation or appeal process if the plan chose not to give any.

But a recent California Supreme Court decision might prove to be a momentous event in the evolution of managed care contracting and in creating a more level playing field. Since California is generally perceived as the bell-weather state for managed care, others states are likely to look closely at this decision and to consider similar courses of action.

In May 2000 the California Supreme Court issued a ruling in Potvin v Metropolitan Life Insurance Company. In that case Dr. Potvin brought suit against Metropolitan, alleging that it held significant economic control over his practice and that his being terminated without explanation or appeal essentially brought financial ruin to his practice. (He alleged that three other plans subsequently dropped him from their panels upon learning of the Metropolitan termination.) The Court found for Dr. Potvin in a 4-3 ruling.

The Court's ruling means that termination without-cause provisions in California managed care contracts are no longer impersonal slam-dunks. A physician there is now entitled to an explanation and a hearing if a payor exercises considerable financial influence on his or her practice (i.e., if the termination would significantly impair that physician's ability to remain in practice). Thus, California physicians will have some due process protections in the event of termination without-cause.

It's very important to understand that the ruling does not say that termination without-cause is disallowed in managed care contracts. Rather, the Court stated, in part, that its ruling ...does not prevent an insurer subject to obligations of common law fair procedure from exercising its sound business judgment when establishing standards of removal of physicians from its preferred provider lists... [U]nder principles recognized by common law of this state for over a century, such removal must be both substantively rational and procedurally fair.

So be sure to keep up on what's happening in your state, and be on the watch for something similar. Some plans may voluntarily opt to offer hearings and appeal. Others may only go that route if forced. But at least the door to equitable resolution has been cracked open.

These materials are intended to provide useful information about the subject matter covered. The author believes that the information is as authoritative and accurate as is reasonably possible and that the sources of information used in preparation of the materials are reliable, but no assurance or warranty of completeness or accuracy is intended or given, and all warranties of any type are disclaimed.

The materials are not intended as legal advice, nor is the author engaged in rendering legal services. The materials are not intended as a replacement for individual legal or professional advice. Information contained herein is presented only for illustrative purposes, and it should not be used to establish any fees or fee schedules, nor is it intended and it should not be construed as encouraging any user of the materials to take any actions that would violate any state or federal antitrust laws, tax laws, or Medicare or Medicaid laws.

Copyright © 1998-2000, Gil Weber, MBA. No part of this newsletter may be reproduced or distributed in any form whatsoever without the author's prior written authorization.

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