BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Adam B. Schiff, Chairman
1999-2000 Regular Session
AB 1455 A
Assembly Member Scott B
As Amended August 7, 2000
Hearing Date: August 8, 2000 1
Health and Safety Code 4
GWW:cjt 5
5
SUBJECT
Health Care Service Plans: Unfair Payment Patterns
DESCRIPTION
This bill would define "an unfair payment pattern" and
authorize the director of the Department of Managed Care to
investigate whether a health plan has engaged in that
practice. If a plan is found to have engaged in an unfair
payment pattern, the bill would:
require, at the director's discretion, an annual audit of
the plan for up to three years in order to verify that
the plan has not engaged in further unfair payment
practices.
authorize the director to require the plan to reimburse
all submitted claims of that provider within 30 days
notwithstanding any other law, for a period up to three
years. During this three-year mandatory pay period, the
provider would remain liable for any fraudulent billing,
and would be required to repay the overbilled amount upon
a final determination (including the exhaustion of all
available administrative remedies and civil remedies) of
that fact.
The bill would set forth similar authority permitting the
director, in his or her discretion, to investigate
allegations submitted by a health plan that a provider has
engaged in a pattern, practice, or scheme of fraudulent
billing. Upon making such a finding, the bill would
(more)
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require the director to report the finding to the
appropriate regulatory agency.
BACKGROUND
Timeframes for the payment of provider claims are set forth
in law. (Health and Safety Code Section 1371. All code
references hereinafter are to this code unless otherwise
noted.) Under Section 1371, a health care service plan
(including its contracting entities such as its medical
groups and independent practice associations) must
reimburse claims "as soon as practical, but no later than
30 working day after receipt of the claim." If the health
care service plan is a health maintenance organization, 45
working days are allotted. These timelines do not apply if
a claim or portion thereof is contested within the allotted
period, and the provider-claimant is notified and given
specific reasons for the contest or denial of the claim.
Section 1371 provides that a claim may be reasonably
contested where the plan has not received the completed
claim and all information necessary to determine its
liability to pay the claim, or has not been granted
reasonable access to information concerning provider
services. A contest on this basis extends the timeframes
for reimbursement by 30 days or, in the case of an HMO, 45
days.
If an uncontested claim is not reimbursed within the
allotted time, interest accrues on the claim at 10 percent
per annum.
Providers (hospitals, doctors, and other health care
providers) contend that, despite Section 1371, health plans
are increasingly engaging in unfair payment patterns that
deny providers full and timely payment for rendered
services. Proponents also assert that the current remedies
to enforce a claim against a health plan, such as a civil
lawsuit or arbitration, are not viable alternatives due to
the time and cost to providers.
CHANGES TO EXISTING LAW
Existing law , the Knox-Keene Health Care Service Plan Act
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of 1975 provides for the regulation and licensure of health
care service plans by the newly created Department of
Managed Care (effective July 1, 2000,) and makes the
willful violation of its provisions of this act punishable
as a misdemeanor. Under existing law, the director of the
department is required to administer and enforce the act
and is provided with certain powers in this respect,
including the power to conduct investigations affecting the
interests of plans, subscribers, enrollees, and the public;
to audit the books and records of plans; to hold public
hearings, to issue subpoenas, to take testimony, and to
compel the production of books, papers, documents, and
other evidence.
This bill would:
authorize a plan enrollee, an enrollee's representative,
or an enrollee's provider to petition the director to
investigate an allegation that a health care service
plan has engaged in an "unfair payment pattern" in the
reimbursement of the provider. An "unfair payment
pattern" would be defined as any of the following:
a)Engaging in inappropriate patterns of reviewing,
approving, handling, processing, or paying claims,
including, but not limited to, policies, requirements
or procedures that result in delayed payment.
b)Engaging in inappropriate patterns of lowering
payment, or nonpayment, of legitimate claims,
including a pattern of retrospective, rather than
concurrent, review that results in the denial of part
or all of a claim.
c)Repeated failure to pay uncontested portions of a
claim within the timeframes set forth in Section 1371.
authorize the director, as he or she deems necessary, to
investigate the allegation, audit, conduct a hearing
(pursuant to the current administrative process),
subpoena witnesses and documents, and collect other
evidence to determine whether the plan has engaged in an
unfair payment pattern.
If a plan is found to have engaged in an unfair payment
pattern, the bill would:
require the director, as he or she deems necessary, to
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annually audit the health plan for up to three years (as
determined by the director), to verify that the plan has
not engaged in further unfair payment practices.
authorize the director to require the plan to pay the
total amount of allowable charges of the provider's
submitted claim or the full plan-provider contract
amount, whichever is greater, within 30 days
notwithstanding the provisions of Section 1371, for a
period up to three years (as determined by the director).
During this three-year mandatory pay period, the
provider would remain liable for any fraudulent billing.
Upon a final determination that the provider has
fraudulently overbilled the health plan, and upon the
exhaustion of all available administrative remedies and
civil remedies, the provider shall repay the health plan
within seven days of the final determination.
Expressly permit the director to issue a cease and desist
order and to exercise any other authority conferred upon
him or her under existing law.
The bill would additionally set forth similar authority
permitting the director, in his or her discretion, to
investigate allegations submitted by a health plan that a
provider has engaged in a pattern, practice, or scheme of
fraudulent billing. Upon making such a finding, the bill
would require the director to report the finding to the
appropriate regulatory agency.
COMMENT
1. A bill in flux?
AB 1455 may be a bill in flux. The current version of
the bill was added in a gut and rewrite in the Senate on
May 18, 2000. It has been amended extensively prior to
its passage by the Senate Insurance Committee, which has
requested that the bill be returned to that Committee for
another hearing. It was again amended extensively on
August 7, with the amendments being provided to Committee
staff late Friday afternoon on August 4. The amendments
respond to some of the issues raised by the opposition
and to some of the issues raised by the Committee staff.
However, major issues remain and the health plans and
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their contracting entities are still opposed.
Staff has also been informed by the President and CEO of
the California Association of Health Plans, opponents of
AB 1471, that the interested parties have been
negotiating since July between themselves on a possible
compromise "deal" which they hope to bring to the
Legislature for adoption. The President of the
California Healthcare Association (CHA), the sponsor of
AB 1455, confirms the negotiations.
ASSUMING THE BILL PASSES, SHOULD THIS COMMITTEE INSIST ON
A RECALL IF THE BILL IS SUBSEQUENTLY CHANGED AFTER IT
LEAVES THIS COMMITTEE, IN LIGHT OF THE POSSIBILITY OF THE
PARTIES CUTTING THEIR OWN DEAL, TO ENSURE THAT THE PUBLIC
INTEREST, AND NOT PRIVATE INTERESTS, ARE SERVED?
2.Stated need for bill
The author contends that it is increasingly difficult for
providers to obtain full and timely reimbursement from
the health plan for services rendered to plan enrollees.
While existing law provides for civil remedies for
untimely payment, these are not viable alternatives due
to the time, cost and likelihood of retaliation against a
provider by a plan.
CHA asserts that more than 60% of California hospitals
lose money from operations, and that a contributing cause
is that plans routinely take 100 days or more to pay
hospitals for authorized, covered health care services.
According to CHA, plans owed 85 California hospitals
$936.5 million for nearly 648,000 overdue claims in 1999.
CHA believes plans are increasingly engaging in payment
patterns that are unfair and illegal which are
jeopardizing patient care and the financial stability of
hospitals and physicians throughout the state.
Proponents assert that AB 1455 is an innovative and
proactive treatment for California's ailing health care
providers.
3. Proposed remedy of mandatory pay for three years is
indeed novel
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One of the remaining major issues is the proposed remedy
that a "guilty" health plan could be required to pay all
claims submitted by the provider within 30 days,
notwithstanding the provisions of Section 1371, for a
period up to three years. Proponents contend that this
is an appropriate and needed proactive remedy to ensure
that providers are timely paid. Without this remedy,
providers will continue to be at the mercy of the plans.
In a sense, the bill says that once a plan is found to
have engaged in an unfair payment pattern with respect to
a provider, the law would presume that the plan will
continue that practice so that the director could order
the 30-day mandatory pay provision for up to three years
to prevent future unfair acts.
There can hardly be doubt that the payment of providers'
claims have been unreasonably delayed or withheld by
HMOs, although the practice is not universal. By a
common sense analysis, delayed or denied payments for
services performed can affect the financial stability of
the provider, and could jeopardize the future delivery of
services. Hence, the issue is not just one between
provider and plan, but one which also involves a strong
public interest in ensuring that the health care delivery
system is not destabilized to the detriment of the public
welfare by an HMO's unfair payment practices. However,
this proposed remedy not only affects prospective unfair
payment practices, it also applies to legitimate claims
practices as well. To that degree, the remedy appears
overly broad.
The proposed remedy would require the plan to pay all
submitted claims within 30-days. If the plan wanted
further information to validate the claim, the provider
could stonewall the request with impunity, knowing that
the plan must pay in the 30-day period. Without the
effective ability to contest questionable and possibly
fraudulent claims, health plans would be required to pay
all submitted claims, with a corresponding effect on
premium costs. If premium increases become unaffordable,
employers and individual buyers will be forced to drop
coverage, which would increase the number of uninsureds
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and place additional pressure on the Medicare and
Medi-Cal systems.
IS THE PROPOSED REMEDY AND ITS POSSIBLE IMPACTS
JUSTIFIED?
In support of the proposal, CHA cites two precedents.
First, they cite Labor Code Section 2679 which vests the
Labor Commissioner with the power to require that a
garment manufacturing industry employer post a bond to
ensure payment of wages upon any second or subsequent
violation of the Labor Code within any two-year period.
Second, they cite Section 2646.6 of Volume 10 of the
California Code of Regulations which vests the Insurance
Commissioner with the power to require a non-complying
insurer to immediately comply with the reporting
requirements of that provision for up to two years when
the insurer has been found to be in non-compliance with
the reporting law.
The cited precedents are off-point. The key
distinguishing feature is that in the cited precedents,
the offender is being required to follow the law. In AB
1455, however, the cited offender is not being ordered to
immediately comply with the law, but is told to pay
claims in 30 days, regardless of whether the HMO has
sufficient information or suspects fraud, and regardless
of the timeframes of Section 1371. To truly follow the
cited precedent, the proposed remedy should either
require the HMO to post a bond to ensure payment (plus
the interest for the delay) or require the HMO to
immediately comply with the provisions of Section 1371.
As such, the proposed mandatory 30-day pay provision is
unprecedented.
SHOULD THE PROPOSED 30-DAY MANDATORY PAY PROVISION APPLY
EVEN IN CASES OF SUSPECTED FRAUD?
SHOULD INSTEAD THE PROPOSED REMEDY BE MODIFIED TO BE
CONSISTENT WITH ONE OF THE TWO CITED PRECEDENTS, OR TO
ANOTHER APPROACH THAT DOES NOT IMPAIR THE HEALTH PLANS'
ABILITY TO CONTEST FRAUDULENT CLAIMS?
This policy consideration, the potential inability to
contemporaneously fight fraud, may also weigh against its
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adoption. In opposition, California Association of
Health Plans (CAHP) asserts that the proposed remedy
would severely undermine the ability of plans to engage
in a vital and legitimate health care system function:
the review of claims to ensure they are legitimate. In
support of their point, CAHP points to recent press
accounts illuminating major cases of overbilling by
provider hospitals and provider physicians in the federal
Medicare program and the state Medi-Cal program. CAHP
asserts that the unpleasant fact is that some providers
do overbill, and health plans need the ability to
appropriately review claims to keep down costs. While
the bill would provide that the provider would be liable
for fraudulent overbilling, but potentially not
inadvertent overbilling, that liability may not be
finally determined until years down the line, thus
creating a possible incentive for "padding," fraudulent
of not.
However, CAHP's arguments must be taken in context. The
proposed 30-day mandatory pay remedy would only be
imposed with respect to a provider that was found by the
director to be unfairly treated by the health plan's
unfair payment practices. As to all other providers,
the Section 1371 timeframes would still apply, giving
HMO's 45 days to review a claim and unlimited extensions
of that allotted time if the HMO does not have enough
information to make a decision. (Hence, proponents might
say, even under this bill, without a "prior conviction"
health plans can continue to use Section 1371 to
indeterminably delay the payment of claims.)
5. Should parallel provisions be enacted for health plans
and providers alike?
Just as there can be no doubt that payment of some
provider claims are unreasonably delayed or withheld by
HMOs, equally, there can be no doubt that some providers
have engaged in fraudulent billing practices.
Opponents, CAHP, contends that since there are cases of
substantial and repeated over-billing of plans by
hospitals, the provisions of the bill should be
completely parallel in their application to both
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providers and plans. Instead, upon a finding of provider
fraud, the bill would only require the director to report
the action to the appropriate regulatory agency. The
bill would not, as in the case where the provider is
affected by the plan's conduct, allow the director to
order remedial relief for the affected plan.
6. Should a provider who receives a mandatory 30-day claim
payment be required to reimburse any amount due to
overbilling, or only amounts due to fraudulent
overbilling? And should liability for repayment only
accrue after total exhaustion of administrative and civil
remedies?
As amended August 7, the bill would specify that a
provider "shall remain liable for fraudulent overbilling"
where a plan has been ordered to pay all of the
provider's claims within the 30-day period. This
liability for repayment will accrue "upon a final
determination" of the provider's liability, after the
exhaustion of all available administrative and civil
remedies.
It is not clear why the proposal would only require the
provider to be liable for fraudulent overbilling. In a
case where the overbilling was inadvertent or where the
intent of fraud cannot be proven, the provider would not
be liable for repayment, even though, contractually, he
or she was not entitled to that money.
In addition, it is not clear why the HMO should be
required to exhaust all administrative and civil remedies
before being able to collect on an overpayment, whether
fraudulently induced or not. The burden imposed would
likely make it cost-prohibitive for the health plan to
contest those questionable payments that do not exceed
the costs of litigation. This dynamic, along with the
30-day mandatory pay provision, would seemingly make it
very difficult, and perhaps cost-prohibitive, for a
health plan to fight fraudulent claims.
Certainly, providers have presented strong evidence that
the current system places providers at the mercy of the
health plans, an unhealthy situation that can threaten
the delivery of health care. However, CHA's proffered
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solution would turn the tables on the health plans, and
in a way that seems to also threaten the delivery of
health care by potentially causing sharp premium
increases.
Civil Code Section 3524 provides the following maxim of
jurisprudence: "Between those who are equally in the
right, or equally in the wrong, the law does not
interpose." An ancillary maxim is: "To seek equity, one
must do equity." AB 1455, unfortunately for besieged
providers, does not appear to meet that test.
7. Related legislation enacted last year
SB 260 (Speier), signed into law last year, directs the
director to investigate and take enforcement action
against a plan that fails to comply with contractual
requirements, which includes the timely payment of
claims.
In addition, AB 78 (Gallegos) created the new, separate
Department of Managed Care to specifically oversee and
regulate the activities of health care service plans,
effective July 1, 2000. Formerly, this function was
assigned to the Department of Corporations whose
lackadaisical enforcement efforts were a strong
contributing factor in the creation of a new, separate
department.
Opponents contend that the new department should be given
an opportunity to flex its new muscles, and that AB 1455
proceeds on the assumption that additional remedies are
needed because the director will not use his existing
powers to compel health plans to comply with statutory
payment deadlines.
8. Technical amendment needed
The Department of Managed Care has determined that its
designation should more appropriately be the "Department
of Managed Health Care." Hence, a massive rewrite of the
codes is being undertaken in two "HMO-cleanup bills" to
reflect the department's desired designation. A
conforming amendment in this bill would be appropriate in
order to avoid another cleanup bill next year.
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The new department has not announced any position on this
bill.
Support: California Nurses Association; California
Psychiatric Association; Alliance of Catholic Health
Care; Childrens Hospital Los Angeles; Glendale
Adventist Medical Center; Glendale Memorial Hospital
and Health Center; Monterey Park Hospital; San Diego
Regional Chamber of Commerce; Tenet HealthSystem;
White Memorial Medical Center; Downey Regional
Medical Center Hospital; Cedars-Sinai Health System
Opposition: California Association of Health Plans;
HealthNet; National IPA Association; California
Association of Physician Organizations
HISTORY
Source: California Healthcare Association; California
Medical Association; California Chapter, American
College of Emergency Physicians
Related Pending Legislation: None Known
Prior Legislation: None Known
Prior Vote: Senate Insurance Committee: 7 - 2
Assembly Votes: Not applicable; gut and amend
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