The failed promise of prompt pay

Like all physicians, orthopedic surgeon Frank B. Kelly, MD, depends on steady cash flow to keep his office running. But Dr. Kelly, who directs the seven-doctor Forsyth Street Ambulatory Surgery Center in Macon, Ga., finds himself constantly battling private insurance companies to get payment for patient claims.

Even though Georgia law requires reimbursement within 15 days, Dr. Kelly says payment can take as long as six months. His financial situation gets so bad that he sometimes delays purchasing new equipment and sweats the months liability premiums come due. "You don't make plans for capital expenditures unless you have the money in hand," he says. "You cannot depend on being paid by an insurance company."

By 2007, all 50 states had some form of law penalizing health insurers for late payments. Yet the problem persists, physicians say.

Insurers have found loopholes to get around the deadlines and are using federal law to slip out of state laws, doctors say.

Rep. Charles B. Gonzalez (D, Texas) was so upset by reports of delayed payment from physicians in his San Antonio district that he held an August hearing on the issue.

"Would they accept the same timeline for payment of premiums as they would of claims?" asked Gonzalez, who chairs the House Small Business Committee's panel on regulation, health care and trade. "They don't carry you for three, four, six months. You'd probably get canceled."

What is needed, says the American Medical Association, is a tough federal law penalizing insurance companies that delay payment.

Market dominance a factor

One reason insurers can ignore prompt-payment laws is that they dominate the market in most communities, says Cecil B. Wilson, MD, immediate past chair of the AMA Board of Trustees. It gives them tremendous negotiating power and prevents physicians from addressing unfair payment practices. The situation, called an oligopsony, occurs when only a few buyers operate in a market with many sellers.

AMA's 2007 update to "Competition in Health Insurance: A Comprehensive Study of U.S. Markets" found that in 299 of 313 metropolitan statistical areas a single insurance company commanded at least 30% of the market. One insurer had 70% or more of the market in 74 areas, while in 15 areas a company had at least 90%.

The U.S. Justice Dept. has placed conditions on only two of 400 approved mergers in the health insurance industry in the past 10 years, according to the AMA report. The physician community has fought back against insurers' practices.

State medical societies and individual physicians brought lawsuits against 10 companies. The cases were consolidated and filed as a single class-action lawsuit in 2000. The action, In Re: Managed Care, claimed that the plans unfairly denied or delayed physician payments. The resulting settlements by seven companies amounted to more than $1.53 billion, about $384 million of which was direct payments to physicians. About $1.1 billion in savings for doctors is expected to be generated by changed business practices agreed to by insurers. The remainder goes toward compliance and enforcement and to two foundations to improve health care quality.

But the settlements eventually will expire, Dr. Wilson said, and there are no guarantees that the companies will stick to the terms of the agreements. The Cigna settlement expired Sept. 4.

Physician complaints about delayed payment also resulted in state legislatures taking action in recent years. Some states, such as Alaska, Idaho, Rhode Island and West Virginia, enacted their first prompt-payment laws. Others shortened the time for paying claims under existing laws. New Jersey, for example, trimmed the deadline from 60 days to 30 days for electronic claims. Some states, such as Alabama, passed laws defining clean claims.

States have imposed at least $76 million in fines in the past 10 years against insurance companies for failure to comply with prompt-pay laws, according to the AMA.

Improved performance claimed

Insurers, however, say they are improving their performance. Aetna offers online submission of claims so physicians can receive payment more quickly than with paper claims, said spokeswoman Roni Grossman. In turn, the company does not have to spend as much time handling paper claims, further speeding the claims process, she said. Humana pays 90% of its claims within 14 days, said company spokesman Jeffrey Blunt.

Cigna HealthCare has improved its record enough to become the top-rated insurer overall by Athenahealth Inc., a company that provides physician billing, practice management and electronic medical record services, said Cigna spokesman Joe Mondy. The insurer placed third in terms of payment speed. The company boosted the accuracy of its payments and expanded its ability to receive claims electronically, Mondy said.

Athenahealth's PayerView survey shows that insurance companies in general are getting better at paying claims in a timely way. Average days in accounts receivable among national insurers decreased from 36.2 days in 2005 to 34.4 days in 2006, found the survey of 8,500 physicians and medical professionals.

Yet that still exceeds the time limits of many state laws. At least 21 states require that paper and electronic claims be paid within 30 days, according to 2006 data from HealthPro Consulting Inc., a New York-based firm that offers reimbursement and coding services to physicians. Only one state -- South Carolina with its limit of 60 days for all claims -- allows insurers to go beyond 45 days to pay a claim, HealthPro found.

Regional insurers are more likely to have slower payment than national companies. For example, 2006 Athenahealth data show that 11 private regional plans had claims in accounts receivable more than 45 days on average.

Physicians charge that one of the most common practices leading to long lag times is insurers' refusal to pay claims they say aren't "clean." They also ask patients to send unnecessary information before they'll pay, doctors alleged.

For example, Dr. Kelly said, an insurance company denied a claim for procedures performed on both of a patient's knees during one office visit, arguing that the claims were duplicative. Insurers also have asked his patients to provide accident information, even though it's already provided on a claim form, or information about pre-existing conditions. Health plans often won't send a copy of the request, so Dr. Kelly's staff can't help patients get the information. His office administrator, Melissa Zediker, relates the example of a claim for hand surgery. It included the surgeon's name and license number, but the insurer denied payment because the claim didn't state the doctor's degree.

"Most of it is really ridiculous -- standard form letters in their system that they shoot off and hope the provider doesn't address," she explained. "A lot of these claims get paid down the road, but they hold the funds 30 to 90 days longer than if it went through with a 'clean' claim," she said.

Doctors say another problem is that many health plans are not subject to state prompt-pay laws. The federal Employee Retirement Income Security Act exempts companies that self-insure from state insurance laws. About 55% of workers have such coverage, according to the 2007 Kaiser Family Foundation Employee Health Benefits Survey. The percentage rises with firm size: 77% of workers at businesses employing more than 200 people are in self-insured plans.

"There's really no effective mechanism for overseeing self-insured health plans except through the [U.S.] Dept. of Labor," explained National Assn. of Insurance Commissioners President-elect and Kansas Insurance Commissioner Sandy Praeger. As of now, though, there is no federal prompt-pay law for the Labor Dept. to enforce.

Federal action

A federal law would fill the loopholes, explained the AMA's Dr. Wilson. He outlined the elements of a proposal when testifying to the House Small Business Committee's health panel in August:

• A strong federal standard. The AMA's policy is to support legislation that requires payment within 30 days for clean paper claims and 14 days for clean electronic claims.
• Stiffer fines than those in state laws to deter bad behavior. Interest should be assessed on the amount of payment outstanding and increase with the claim's delinquency. Physicians' attorney's fees and costs also should be provided when they win a claims dispute with an insurer.
• State law protections. Stronger state laws should be protected, and state requirements not covered by a federal standard should not be preempted.
• Application of state laws. Any federal law should clarify that state prompt-payment laws apply to all nongovernment health plans, denying insurers the argument that ERISA preempts state law.
• Time limits for notification. Federal law should set a statutorily defined time limit for insurers to notify physicians that additional information is needed to process a claim. The notice should specify all problems with the claim and give an opportunity to provide the information needed. Insurers also should be required to pay any portion of a claim that is complete and uncontested.

Federal action would be a "wake-up call" to insurance companies, Rep. Gonzalez said. "You would have companies who would definitely know it has gotten Congress' attention."

Praeger cautioned against Congress approving a complicated law. Lawmakers should relax ERISA's state preemption in regard to prompt payment, she said.

Will Congress pass a prompt-pay bill in the near future? There is definitely interest, Gonzalez said. "I think we would have tremendous support. It's just a matter of getting people organized." He does not intend to introduce a prompt-pay measure for consideration on its own. Instead, he will build a consensus for legislation and look for a bill to attach it to in an effort to get it passed in the busy last few months of this year.

The AMA will continue working with Congress to pass a bill, Dr. Wilson said. The Association will investigate and publicize insurance company practices so state insurance commissioners can enforce existing laws, he added.