Who Pays When IPAs Fail?
Follow-up to Nov. 98 Bulletin
Special E-Mail Bulletin
Hi, everyone. In November 98 I sent you information on a California suit which sought to hold HMOs financially responsible for unpaid claims when their contracted intermediaries (e.g., IPAs, PPMCs, etc.) went out of business. Earlier this month I reported to you that the case had been settled in the HMOs' favor. Now, in Maryland, the courts have sided with providers and told HMOs that they must make good on unpaid claims. Here's a story from the AMA News you'll find interesting. This issue is far from settled in any state let alone all states.
Gil Weber
MEDICAL MARKETS
Should HMOs have to pay debts owed doctors?
Maryland says HMOs should pay doctors when contracted intermediaries fail; California says no. But those may not be their final answers.
By Leigh Page, AMNews staff. Jan. 31, 2000.
Maryland regulators have answered yes and a California court has answered no to the emerging question of whether HMOs are responsible when their contracted groups fail to pay their physicians.
In both cases, the question arose when intermediaries that contracted with HMOs on behalf of physicians went out of business, owing physicians millions of dollars.
The HMOs claimed that because they had already paid the intermediaries, the physicians could not collect from them. That would constitute paying twice for services delivered once, according to health plans.
Maryland Insurance Commissioner Steven Larsen didn't agree. On Dec. 27, 1999, he ruled that UnitedHealthcare of the Mid-Atlantic, an HMO that contracted with three failed intermediaries in the state, must pay their bills to contracted doctors and hospitals in full, with interest.
He cited a 1991 state law saying health plans "shall be responsible for all claims or payments for health care services" owed by any intermediaries. Larsen's ruling echoed a similar one in Colorado early last year.
But in California, San Diego Superior Court Judge Janis Sammartino on Jan. 7 rejected a California Medical Assn. lawsuit claiming that HMOs were responsible for paying doctors who have claims with FPA Medical Management, a failed PPM.
The decisions, like the question of so-called "double payment," are far from settled. UnitedHealthcare, which didn't comment on the Maryland ruling, may appeal it. And the CMA plans to appeal its case.
Nationwide debate
The issue of whether HMOs pay when independent practice associations and other intermediaries fail is "going to be an extremely important case to watch," Chicago health care attorney Mark Rust told representatives of state medical societies Jan. 14 at the AMA State Legislative Meeting in Miami Beach, Fla.
Reflecting a widely held view among physicians, Rust said HMOs are responsible because many of them "do risk-contracting with IPAs knowing full well that the IPA is not sustainable based on the payments. IPAs are not entering into sound deals."
Howard Siegel, MD, head of a Baltimore pathology group owed several thousand dollars by one of the failed intermediaries, Doctors Health Inc., said Larsen sent "a message to HMOs that you can't wash your hands. The risk will always come back to you."
But Walter Zellman, executive director of the California Assn. of Health Plans, said paying twice for the same service not only bites into HMOs' low margins but also puts "the whole construct of capitation" into question.
"The physician would no longer be at risk and would have less incentive to make efficient use of resources," Zellman said.
Al Holloway, CEO of the IPA Assn. of America, based in Oakland, Calif., also opposes double payments because it lets poorly managed IPAs off the hook.
"When IPAs sign a contract to take on risk, they should be held accountable," he said. "A lot of physician organizations will not be around and, to be honest, a lot should not be around."
Cleaning up Maryland's mess
The Maryland case involved three organizations -- Doctors Health Inc., Maryland Personal Physicians Inc. and Dimensions Health Network -- covering more than 100 contracted doctors owed millions of dollars.
Doctors Health, a PPM, went bankrupt in November 1998. That prompted MedChi, the Maryland State Medical Society, to propose the HMO payment ruling to Larsen, which involved months of negotiations, said MedChi Executive Director Michael Preston.
Then another PPM, Maryland Personal Physicians, went bankrupt in September 1999. Dimensions closed in November 1999 but insists that Larsen's order is unnecessary because it can pay off its debts without resorting to HMO payments.
Larsen's ruling applies to independent physicians and hospitals who contracted with downstream organizations; it doesn't apply to providers who are employees, shareholders or partners in the failed organizations.
Maryland HMOs refused to comment on the ruling. CareFirst BlueCross BlueShield, the other major contractor along with United, voluntarily agreed to pay its contracted doctors. CareFirst initially refused to pay claims for Doctors Health but changed its mind on Jan. 13, after discussions with Larsen.
The struggle is just beginning
In other states, the controversial double-payment rule faces an uphill battle.
Even in Colorado, where a ruling similar to Maryland's has been on the books for a year, physicians have seen little payment yet, according to Sandy Maloney, executive director of the Colorado Medical Society.
Colorado Insurance Commissioner Jack Ehnes announced the ruling in early 1999 after the failure of Paramount Physicians Network, an IPA that owed 1,500 doctors a total of $3 million. Two insurers, Cigna Healthcare of Colorado and Great-West Life, agreed that they would cover their share of monies owed to Paramount doctors.
But Blue Cross and Blue Shield of Colorado, the largest insurer working with Paramount, was not so forthcoming. The insurer lost a lawsuit against the Colorado Division of Insurance over the issue, then refused to pay doctors until they dropped a lawsuit against the company for nonpayment. Negotiations over the issue have ground to a halt since Indianapolis-based Anthem bought the Colorado Blues last fall, Maloney said.
The Colorado Assn. of HMOs failed last year to undo a 1997 state law on which Ehnes based his ruling. The group is still considering whether to continue those efforts this year, said Executive Director Susan Cox.
Cox added that recent comments by the new insurance commissioner, Bill Kurven, suggest that he might soften the division's stance regarding HMO responsibility when groups fail.
"The language of the law is pretty ambiguous," Cox said.
Insurance department spokeswoman Nancy Ryan said Kurven will detail his stance on HMO payments in the next few months when he rules on Millennial Inc., an amalgamation of eight IPAs that went bankrupt in November 1999.
Intermediaries under scrutiny
As regulators and legislators try to make HMOs pay up when intermediaries go under, they are also trying to make them more accountable.
These groups rarely are under any direct state regulation and rarely set aside reserves to cushion themselves against higher-than-expected claims, as HMOs must do.
In legislation enacted last year and effective Jan. 1, California has required intermediaries to disclose financial information to contracted HMOs. The law also instructs state regulators to propose financial solvency standards for these companies. Currently, California does not regulate any intermediaries except those who assume hospital as well as physician risk.
In Maryland, Larsen was expected to call for similar regulations in a report to the Legislature due Jan. 27.
Karen Ignagni, president of the American Assn. of Health Plans, applauded such legislation. But physician groups are wary.
Such laws lead to "a dilution of responsibility," said Steve Johnson, general counsel at MedChi. "It's easier when one entity [the HMO] is responsible for all arrangements and the plan closely monitors downstream entities," he said.
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