Medical societies join to fight insurer prompt-pay lawsuit

Insurers want a court to block a new Georgia law requiring third-party administrators to pay medical bills without delays.

By Alicia Gallegos — Posted Oct. 29, 2012

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The American Medical Association and the Medical Assn. of Georgia are stepping into a legal battle over whether Georgia can impose payment timelines on the processing of claims through self-funded health plans.

America’s Health Insurance Plans, a national trade association representing insurers, sued Georgia Insurance Commissioner Ralph T. Hudgens in August over the state’s Insurance Delivery Enhancement Act of 2011. The law, scheduled to go into effect in January 2013, requires companies that provide third-party administrative services to pay medical claims in a timely manner. AHIP, which wants a judge to block the law’s enactment, says the state has no authority to regulate self-funded health plans.

On Oct. 12, the Litigation Center of the AMA and the State Medical Societies joined MAG in requesting the court’s approval to intervene in the case.

“This case has national implications for resolving the regulatory void in which health insurers are unaccountable for chronically late payments when they serve as administrators for self-insured employers,” AMA President Jeremy A. Lazarus, MD, said in a statement. “Georgia has effectively closed that regulatory loophole, which helps physicians maintain a sustainable practice environment. Georgia’s prompt-payment law is one of the most effective in the country, and the AMA and MAG are best positioned to defend the statute on behalf of physicians.”

But self-funded health plans are governed exclusively by federal law, which preempts state laws from regulating them, said AHIP spokesman Robert Zirkelbach.

The Georgia law “violates long-standing federal law and sets a very troubling precedent,” he said. “If state laws start applying prompt-pay laws to self-funded plans, it’s going to make it much harder for employers to offer health benefits to their employees.”

Georgia has long-standing regulations that address prompt-payment timelines for traditional health insurance plans. Since 1999, the state has required traditional insurers to pay claims within 15 working days or to give notice why the claims will be denied or not paid on time.

But doctors have struggled to receive timely payments from administrators of self-insured plans, said MAG Executive Director and CEO Donald J. Palmisano Jr. Self-funded plans are defined as plans in which employers retain the financial risk of insurance coverage and contract with a third-party firm to take care of plan administration, including claims processing. With such plans, third-party administrators often are the same insurers that sell traditional insurance products.

Payments from administrators of self-funded plans have exceeded 30 days and in some cases have taken as long as 60 days, Palmisano said.

“It really is a fairness issue to small businesses, because physicians are a small business and expect to be paid in a timely manner,” he said. “Physicians are living up to their end of [the] bargain, but third-party administrators are not living up to their end of the bargain. Because physicians are not being paid as they’re supposed to, it basically prohibits physicians from expanding into underserved areas.”

Health professionals in Georgia successfully advocated for the passage of a 2010 bill aimed at extending the state’s prompt-pay law to cover insurers administering self-funded health plans. But that bill was vetoed by then-Gov. Sonny Perdue. In 2011, Georgia Gov. Nathan Deal signed the Insurance Delivery Enhancement Act. That statute requires both traditional insurers and third-party administrators to pay paper claims within 30 days and electronic claims within 15 days, or to give notice why the claims will be denied or not paid on time. Administrators must pay 12% interest on late claims payments if they fail to give notice.

Conflicts between federal, state law

Self-funded plans and their administrators already must follow federal claims regulations under the Employee Retirement Income Security Act, AHIP’s Zirkelbach said. ERISA regulates companies and organizations that fund their own health insurance risk pools.

Georgia’s prompt-pay amendment poses a direct conflict with ERISA’s civil enforcement mechanism, which sets forth remedies for improper or untimely processing of benefit claims, AHIP said.

“ERISA wanted to give these employers a uniform set of rules to abide by, rather than abide by rules in 50 states, rules that sometimes conflict,” Zirkelbach said. Subjecting self-funded plans to differing state regulations would complicate the administration of nationwide plans, he said

Physician organizations argue that the Georgia law does not violate ERISA because it does not affect the coverage and benefits decisions made by self-funded plans. The law regulates only the financial relationship between third-party administrators and physicians, which they say is outside ERISA’s purview.

Conflicts among insurers and doctors over timely claims payments have led to litigation in the past.

In 2000, the AMA and others sued several large insurance companies, including Aetna, Cigna, Humana and WellPoint, alleging that the health plans were unfairly denying or delaying physician payments. The consolidated lawsuits led to a series of 2005 settlements under which the insurers agreed to pay claims more promptly for both fully insured and self-insured plans, according to court documents.

The settlement conditions, which lasted four years, were identical to many of the terms in the new law that AHIP now is fighting to invalidate, Palmisano said.

“It wasn’t a problem for them to do it for four years in a settlement, but all of a sudden, a state law is going into effect and now there’s irreparable harm to the companies?” he asked.

Glenn Allen, communications director for Hudgens, the state insurance commissioner, said the law is important and that his office will continue defending the statute. “The commissioner believes that doctors should be paid promptly, and he will enforce the law until a federal court tells him to do otherwise.”

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Corporate shift to self-funded plans complicates physician payment

All states have some form of law penalizing health insurers for late payments, but the laws might not apply to self-funded insurance plans offered by many employers. As more companies move from traditional insurance products to self-funded plans, some say doctors may face more difficulties receiving timely payments.

In Georgia, 65% of workers are in self-funded plans, said Donald J. Palmisano Jr., executive director and CEO of the Medical Assn. of Georgia. That reflects a nationwide shift toward self-funded insurance plans that rely on third-party administration of claims.

A Kaiser Family Foundation survey found that 60% of employees were covered by partial or completely self-funded plans in 2012. The number has increased by 11 percentage points since 2000, the survey found.

“To process plans, the third-party administrator is becoming more prevalent, because more employers are using opportunities to self-fund,” said Patricia Andriolo-Bull, vice president of payer business development at athenahealth, a company that provides physician billing, practice management and electronic health record services. “Traditionally, self-funded plans [were more common among] very large group employers, but that trend has been going down market. Now employers with fewer than 100 employees are turning toward self-insured models.”

Insurance companies generally have gotten quicker over time at paying claims, according to athenahealth’s annual PayerView survey. However, in 2011, most insurers stagnated or backtracked on processing speed. Average days in accounts receivable among major insurers increased from 25.2 in 2010 to 26.1 in 2011, the survey found. The major payers data include the largest insurers nationwide and their affiliates.

“In previous years, we have seen payers spending more time and effort trying to improve their results,” Andriolo-Bull said. “This year, most of the payers remained pretty steady or had a slight decline.” Insurers likely are focusing on preparing for health insurance exchanges and implementing other Affordable Care Act requirements, she said.

Blue Cross Blue Shield of Rhode Island retained its top spot in the survey in overall performance and for being the fastest to pay claims. The insurer’s average claims in accounts receivable is 15.5 days. That success comes from building strong relationships with doctors and working through administrative barriers, said William K. Wray, executive vice president and chief operating officer for Blue Cross Blue Shield of Rhode Island.

“We don’t think that imposing unnecessary administrative burdens on providers is a good thing,” he said. “If we owe the money, we should pay it as quickly as possible. Providers have a business to run.”

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