Why Aren’t State Prompt-Payment Insurance Laws Assuring Prompt Payments? Although there are currently over 40 states that have approved laws to require that insurers pay physicians’ claims within set time frames--usually ranging from 30 to 45 days--many healthcare professionals have continued to experience unwarranted delays in receiving third-party payments.  The required time frames for electronic claims range from 15 to 30 days.  Discouraged that the original legislation has proven ineffective, almost three-fourths of these states have sought to strengthen these laws by tightening the definitions of a “clean claim”, bar plans from overriding prompt-pay time limits, and by trying to define exactly when a claim is deemed as being paid. Iowa and West Virginia were successful in passing prompt-payment legislation for the first time this year.  Alabama approved including the enforcement of administrative fines by its State Insurance Commissioner against insurers that have a pattern of overdue payments, and also added a definition of a “clean claim.”  The legislatures in Indiana and South Dakota joined 10 other states that tightened deadlines for claims submitted electronically. Arkansas set a 12% annual interest rate for late payments and established that hiring third-party administrators to process claims does not relieve insurers of their obligations to pay.

The Georgia State Insurance Department has specific staff assigned to handling complaints by physician practices in their state.

Massachusetts and Connecticut also have had recent high-profile fines for prompt-pay violations. A recent audit by the Ohio Department of Insurance resulted in $545,000 in fines levied against seven HMOs for prompt-payment violations. The New Jersey law requires insurers to reimburse providers within 30 days for electronic claims and within 40 days for paper claims.

The Michigan Legislature passed an update to its original 1980 prompt-payment mandate this year, but the Governor did not sign it.

This past June, the Governor of Texas was criticized for vetoing the legislative changes designed to strengthen the 1999 Texas Prompt-Payment Law.  The Governor’s veto message on the 2001 changes stated that the legislation would have increased lawsuits and led to higher insurance premiums.  Subsequently, the Texas Department of Insurance did announce penalties against seven insurance companies that amounted to $9.25 million for infraction of the current prompt-payment law.

California has also been seeking stronger enforcement via legislation passed last year that empowered the Department of Managed Health Care to investigate prompt-payment complaints. The Department’s first penalty levied against PacifiCare Health System, reportedly resulted in a hefty $250,000 fine.  

Application to ERISA Uncertain
State Insurance Departments sometimes indicate uncertainty as to whether ERISA preempts the application of prompt-payment timelines for ERISA plans, particularly self-insured ERISA plans. Some strong arguments against preemption for you to use are as follows:

There is a strong presumption against preemption where the state regulation at issue is part of its traditional authority to regulate the health and welfare of its citizens. Prompt- payment laws fall squarely within this category, as they are designed to protect healthcare providers from financial distress, thus impacting their ability to provide care.

Preemption does not occur unless a regulation has an impermissible “connection with” ERISA plans, such as mandated benefit laws or laws that create alternative enforcement mechanisms.  Prompt-payment laws have only a peripheral, indirect effect, if any, on health plan administration and do not create additional avenues for participants to enforce their rights under a plan or obtain benefits under a plan. They do not require payment for benefits that the plan deems are not covered, but merely require reasonable timeframes for paying providers for covered benefits.

Prompt-payment laws do not trigger preemption by impermissibly singling out ERISA plans.  Rather, well-worded prompt-pay statutes apply payment timelines to all types of healthcare payers/claims administrators. The best approach to drafting legislation/regulations is to apply the standard across the board for claims submitted to any entity responsible for paying claims to providers in the state. This would cover insurers, TPAs, IPAs, etc.

States Regulate Debtor/Creditor Relations
An additional argument against preemption is that these laws are “run of the mill state laws” that the Supreme Court has held to apply to ERISA plans. The Court has described such laws as those relating to claims for “unpaid rent, failure to pay creditors, or even torts”. States traditionally have regulated the relationship between debtors and creditors, which is essentially what we are addressing through prompt-payment laws.  Finally, public policy supports non-preemption of prompt-payment laws. Similar public policy interests have been held to authorize state law claims against ERISA plans where there is a “misrepresentation of coverage” by a patient--the plan verifies such coverage and then refuses to pay after the healthcare professional provides a service.

If you live in a state with prompt-payment laws, send your documented complaints to the insurance company in question and copies of your complaints to the appropriate state regulatory agency and the ACFAS Department of Socioeconomics and Practice Management. Retain a copy of these letters for your files.