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A Timely Overview: Prompt Payment Statutes and Legal IssuesSponsored byPayors, Plans, and Managed Care Practice GroupJanuary 23, 2012 Presenters: Ardith M. Bronson, Esquire, Weill, Gotshal & Manges LLP, Boston, MA, ardith.bronson@weil.comLori L. Pines, Esquire, Weill, Gotshal & Manges LLP, New York, NY,


road map
Road Map
  • History, Purpose and General Facts
  • How Prompt Payment Laws Work
  • Representative Statutes
  • Survey of Legal Issues
  • Criticisms and Proposed Reforms
the emergence of prompt pay laws
The Emergence of Prompt Pay Laws
  • The first prompt pay law was passed in Michigan in 1980
  • The development of these laws tracked the growth of managed care plans
  • By 2001, 45 more states had passed prompt pay laws
  • By 2007, all 50 states including the District of Columbia has some form of prompt payment law
florida s hmo prompt pay statute
Florida’s HMO Prompt Pay Statute
  • 12% interest rate for late payments
california s prompt pay statute
California’s Prompt Pay Statute
  • 15% interest rate for late payments or $15 per day, whichever is greater
  • Additional $10 fine if provider included all necessary information
new jersey s prompt pay statute
New Jersey’s Prompt Pay Statute
  • 12% interest rate for late payments
what is a clean claim
What is a “Clean” Claim?
  • Definition varies by state, but generally means the claim contains all the correct information needed about a patient and the service provided
  • Pennsylvania: “A claim for payment for a health care service which has no defect or impropriety. A defect or impropriety shall include lack of required substantiating documentation or a particular circumstance requiring special treatment which prevents timely payment from being made on the claim.”
  • Florida: “‘Clean claim’ means a claim that has been completed properly according to Medicaid billing guidelines, is accompanied by all necessary documentation required by federal law, state law, or state administrative rule for payment, and can be processed and adjudicated without obtaining additional information from the provider or from a third party.”
  • New Hampshire: “‘Clean claim’ means a claim for payment of covered health care expenses that is submitted to an insurer on the insurer’s standard claim form using the most current published procedural codes, with all the required fields completed with correct and complete information in accordance with the insurer's published filing requirements.”
what is an overpayment
What is an “Overpayment”?
  • A claim by an insurer or managed care organization that a provider was originally paid too much for a service
  • Reciprocal obligation imposed on providers to reimburse insurer or managed care organization
  • Florida
      • Requires insurer to notify provider within 30 months of initial payment (12 months for certain types of providers)
      • Provider must respond within 140, or forfeits right to contest overpayment
      • After that, insurer can begin offsetting future payments
  • New Jersey
      • Requires insurer to notify provider within 18 months of initial payment
      • Provider must respond within 45 days
      • Insurer can begin offsetting future payments before 45 days expire if provider has exhausted appeal rights
private right of action
Private Right of Action
  • Enforcement of prompt pay statutes generally placed with a government entity such as the state insurance commissioner
  • Some states expressly bar private litigants from initiating causes of action based on violations of the prompt pay statute.
      • Delaware: “This regulation shall not create a private cause of action for any person or entity, other than the Delaware Insurance Commissioner, against a carrier or its representative based upon a violation. . . . .”
  • Other states expressly authorize private litigant to initiate causes of actions based on violations of the prompt pay statute.
      • Alabama: “If the company or agency fails to reimburse the provider . . . then the provider shall be entitled to recover in the circuit or district courts of this state from the company or agency responsible for the payment of the claim an amount equal to the value of the claim plus interest . . . .”.
private right of action1
Private Right of Action
  • What happens when a prompt pay statute is silent about whether a private right of action exists?
  • Courts apply a test based on three factors to determine whether a private right of action should be implied:
    • 1. whether the plaintiff was one of the class for whose benefit the statute was enacted
    • 2. whether there was legislative intent to create or deny a private right of action
    • 3. whether implication of a private right of action is consistent with the underlying purposes of the legislative scheme
  • Where a comprehensive enforcement scheme grants the insurance commissioner or another state body authority to enforce the statute, it is unlikely that the legislature “absentmindedly forgot to mention an intended private right of action.”
bell v blue cross of california
Bell v. Blue Cross of California
  • Emergency room physicians brought class actions against BCC
  • Main issue was whether a private right of action existed
  • California Court of Appeals held that physicians had standing to seek reimbursement
  • Court warned that “if providers are precluded from bringing private causes of action to challenge health plans’ reimbursement determinations, health plans may receive an unjust windfall and patients may suffer an economic hardship when providers resort to balance billing activities to collect the difference between the health plans’ payment and the provider’s billed charges.”
foundation health v westside ekg associations
Foundation Health v. Westside EKG Associations
  • Medical service provider brought action against HMOs for breach of contract
  • Main issue was whether a private right of action existed
  • Florida Supreme Court held that providers may bring a cause of action because the provider is a third-party beneficiary to the contract between the HMO and its subscriber
  • Court held that “‘when parties contract upon a matter which is the subject of statutory regulation, the parties are presumed to have entered into their agreement with reference to such statute, which becomes a part of the contract…[s]ervice providers are recognized as third party beneficiaries of insurance contracts in other contexts’. . . an insurer’s failure to pay a medical service provider is a valid basis for a breach of contract action.”
sutter v horizon
Sutter v. Horizon
  • New Jersey physician sued largest HMO in the state
  • Sought tens of millions of dollars in damages for several deceptive and unfair practices, including a “consistent failure” to pay claims on time and a failure to pay interest on late payments
  • New Jersey superior court certified a class-action on behalf of more than 40,000 New Jersey physicians
  • Parties settled on the eve of trial for $35 million, or about $1,741 per physician. This figure was based entirely on the HMO’s business reforms that would save physicians money by not having to “chase down payment on edited claims.”
in re managed care litigation
In re Managed Care Litigation
  • One of the biggest health industry class actions ever
  • Over 950,000 physicians and several medical associations
  • Alleged violations of prompt pay statutes in 32 states
  • District court dismissed claims for 19 states
  • 11th Circuit Court of Appeals reversed certification of prompt pay claims because individualized issues of fact predominated
harrison v united healthcare of georgia inc
Harrison v. United Healthcare of Georgia, Inc.
  • Pediatric group in Georgia filed a lawsuit against United Healthcare
  • Alleged failure to comply with Georgia’s prompt pay law, O.C.G.A. § 33-24-59.5
  • Because Georgia’s prompt pay law does not provide a private right of action
  • Plaintiffs brought breach of contract claim based on theory that the prompt pay law was incorporated into their provider agreements with the insurance company
medicare advantage organizations and medicare part d sponsors
Medicare Advantage Organizationsand Medicare Part D Sponsors
  • MAs
      • Contracts between MA’s and CMS require the MA to pay 95% of clean claims within 30 days
      • Interest begins to accrues after 30 days of non-payment for clean claims
      • All claims from non-par providers must be paid or denied within 60 days
  • Part D Sponsors
      • Requires payment within 14 days for clean claims submitted by network retail pharmacies
      • Requires payment within 14 days for electronic claims
      • Requires payment within 30 days for all other claims
proposed reforms to prompt pay statutes
Proposed Reforms to Prompt Pay Statutes
  • Shorter time limitations for insurers to reimburse claims (e.g., 14 days)
  • Clear definition of a “clean” claim, including adoption of universal and uniform “claim for payment” form
  • Increase severity of statutory penalties (e.g., based on the highest interest rate permitted by state law for short-term loans or state Unfair and Deceptive State Practice Acts).
  • Make private right of action available in every state, allowing providers and patients to receive damages and attorney’s fees and costs if they prevail
  • Empower state insurance commissioners to audit the payment practices of health insurance companies and initiate public enforcement actions