BILL ANALYSIS SENATE HEALTH COMMITTEE ANALYSIS Senator Elaine K Alquist, Chair BILL NO: AB 684 A AUTHOR: Ma B AMENDED: June 18, 2009 HEARING DATE: June 25, 2009 6 CONSULTANT: 8 Park/ 4 SUBJECT Claim reimbursement: late payments: dental services SUMMARY Increases the interest rate health plans and health insurers (collectively, carriers) covering dental services must pay for uncontested claims and claims that the carrier determines to be payable that are not reimbursed within 60 working days, as specified, and requires the interest that accrues to be paid to the carriers' respective regulators for enforcement of specified laws, upon appropriation. Requires carriers offering dental coverage to follow a specified process for requesting additional information related to a claim. CHANGES TO EXISTING LAW Existing law: Existing law requires the regulation of health plans by the Department of Managed Health Care (DMHC) and the regulation of health insurers by the California Department of Insurance (CDI). Existing law requires carriers to reimburse uncontested claims no later than 30 working days after the claim is Continued--- STAFF ANALYSIS OF ASSEMBLY BILL 684 (Ma) Page 2 received (or 45 working days if the carrier is a health maintenance organization (HMO)). Existing law requires an uncontested claim that has not been paid in the required time to accrue interest at a rate of 15 percent per year for health plans and 10 percent per year for health insurers, beginning with the first calendar day after the 30- or 45-working day period. Existing law requires carriers to notify claimants in writing that a claim is contested or denied, within 30 working days after receipt of a claim (or 45 days, if the carrier is an HMO), and requires the notice to identify the portion of the claim that is contested and the specific reasons for contesting the claim. Existing law provides that a claim, or portion thereof, is reasonably contested, in the case that the carrier has not received the completed claim and all the "information necessary to determine payer liability for the claim," as defined, or has not been granted reasonable access to information concerning provider services. Existing law requires carriers to complete reconsideration of the claim within 30 days (or if the carrier is an HMO, 45 days) after receipt of additional information. Existing law provides that, if a carrier has received all of the information necessary to determine payer liability for a contested claim and has not reimbursed a claim it has determined to be payable within 30 working days of the receipt of that information (or 45 working days if the carrier is an HMO), interest payable shall accrue at a rate of 15 percent per year for health plans and 10 percent per year for health insurers, beginning with the first calendar day after the 30- or 45-working day period. Existing law provides that fines and administrative penalties collected for health plan violations of the Knox-Keene Act (which excludes health insurers) shall be deposited into a Managed Care Administrative Fines and Penalties Fund, for transfer into the Medically Underserved Account for Physicians and the Major Risk Medical Insurance Fund, as specified. Existing law prohibits health plans from engaging in an unfair payment pattern, defined as: 1) engaging in a demonstrable and unjust pattern, as defined by DMHC, of STAFF ANALYSIS OF ASSEMBLY BILL 684 (Ma) Page 3 reviewing or processing complete and accurate claims that result in payment delays; 2) engaging in a demonstrable and unjust pattern, as defined by DMHC, of reducing the amount of payment or denying complete and accurate claims; 3) failing on a repeated basis to pay the uncontested portions of a claim within the timeframes specified in current law; or, 4) failing on a repeated basis to automatically include the interest due on claims. Existing law allows the director of DMHC, upon a final determination that a health plan has engaged in an unfair payment pattern, to impose monetary penalties, and require the health plan to pay complete and accurate claims, as defined, from the provider for a period of up to three years. Existing law defines unfair methods of competition and unfair and deceptive acts or practices in the business of insurance, and includes in this definition, not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear. Existing law provides that any person who engages in any unfair method of competition or any unfair or deceptive act or practice in the business of insurance is liable to the state for a civil penalty to be fixed by the commissioner, not to exceed five thousand dollars ($5,000) for each act, or, if the act or practice was willful, a civil penalty not to exceed ten thousand dollars ($10,000) for each act. Existing law allows the commissioner to have the discretion to establish what constitutes an act. Existing regulation provides that specified claims settlement practices, when either knowingly committed on a single occasion, or performed with such frequency as to indicate a general business practice, are considered to be unfair claims settlement practices and are prohibited. This bill: This bill would require health plans covering dental services (health plans), health insurers covering dental services (health insurers), and specialized health plans and health insurers covering dental services (dental plans), collectively referred to as "dental carriers," to pay interest at the rate of 20 percent per year on an uncontested claim that is not reimbursed within 60 working days after receipt, and 25 percent per year on an uncontested claim that is not reimbursed within 90 working STAFF ANALYSIS OF ASSEMBLY BILL 684 (Ma) Page 4 days after receipt. The bill would require interest to begin with the first calendar day after the 60-working day period, or 90-working day period, respectively. The bill would also require these increased interest rates apply when dental carriers have received all of the information necessary to determine payer liability for a contested claim, and the dental carrier has not reimbursed the claim within these additional time frames. The bill would require that interest that accrues in excess of 15 percent per year for health plans and specialized health plans covering dental services, and 10 percent per year for health insurers and specialized health insurance policies covering dental services, to be paid to each carrier's respective regulator for enforcement of specified claims reimbursement requirements in law, upon appropriation. The bill would further require that, for dental carriers, if a claim or portion thereof is contested on the basis that the dental carrier has not received all information necessary to determine payer liability, the dental carrier must include a written request for the necessary information and a clear and accurate explanation of the necessity for that information within the notice that is already required in current law for carriers to notify claimants that a claim is contested. The bill would require the dental carrier to acknowledge receipt of any information requested by the dental carrier, within two working days of receipt, if the claimant submits the information electronically, or 15 working days after receipt, if the claimant submits the information in paper form. The bill would require dental carriers to process or deny the claim, or portion thereof, within the timeframe specified under current law. FISCAL IMPACT According to the Assembly Appropriations Committee, the bill would result in minor absorbable workload to DMHC and CDI to continue oversight of requirements regarding prompt payment by health plans and insurers. The committee analysis notes that any interest payments required by STAFF ANALYSIS OF ASSEMBLY BILL 684 (Ma) Page 5 dental health plans and insurers under provisions of this bill are minor. For example, a claim of $334 dollars not paid in a timely manner would require interest payments of 18.3 cents per day for a penalty for payment between 61 and 90 days and 23 cents per day for a penalty of payment after 90 days. BACKGROUND AND DISCUSSION Author's statement According to the author, despite the penalties for late payments on claims in current law, delays in claim reimbursements continue to be experienced. The author notes that, among all third-party payer issues that the California Dental Association (CDA) hears about from member dentists, complaints about late payment on claims are the most numerous. The author points to internal CDA research, which shows that, of claims that are not paid within 30 days, more than 60 percent are still unpaid after 60 days; and, of all claims that are outstanding after 60 days, 82 percent are unpaid after 90 days. The author highlights additional internal CDA research, which found that, on average, dental offices are carrying $7,887.00 in claims that have not been paid within 60 days. The author notes that this bill leaves the penalty for non-payment of claims from 30 to 60 days unchanged; however, when a dental plan fails to pay a claim within 60 days, the author states that a higher penalty is justified, and the penalty should be increased again when claims are not paid within 90 days. The author believes that higher late payment penalties provide a greater incentive for dental plans to process and pay claims sooner, and not allow claims to go outstanding for months. Dental claims - complaints and late payments According to the DMHC website, from 2002 through the present, there have been 54 enforcement actions involving late claims payment. Of the 54, five involved dental plans with a combined penalty of $74,000. DMHC's Office of Provider Oversight reports 7,064 complaints received from all providers during 2008. Of the 7,064 complaints, 48 were from dental providers. Of those 48 complaints, 16 dental STAFF ANALYSIS OF ASSEMBLY BILL 684 (Ma) Page 6 provider complaints involved an issue of untimely payment. According to the California Dental Association, extrapolating from numbers from the American Dental Association's most recent Survey of Current Issues in Dentistry, the average number of claims submitted by a dental practice (regardless of type) to all payers per week is 73.8, or 3,690 claims per year. According to the 2006 County Business Patterns report, U.S. Census Bureau, there are 19,436 "dental establishments" in California (combining both solo practices and group practices). Based on these numbers, CDA believes that there are roughly 71.7 million dental claims submitted each year in California. However, it is unclear how may of these claims are covered under state law or regulation. (Some employer groups "self-fund" the costs of health care, in essence acting as the insurer. Such groups are not subject to the same state laws or regulations pertaining to health plans, insurers, or specialized health plans or health policies.) Delta Dental, which administers dental benefits for 17 million Californians, processed 16 million claims for California enrollees in 2008. According to a survey conducted in February 2009 by the California Dental Association, the sponsor of this measure, which asked 29 dental offices how many claims were outstanding, those offices reported a total 376 claims worth $203,126 that were in the 31-60 day period, 159 claims worth $64,697 that were in the 61-90 day period, and 691 claims worth $164,038 that were over the 90-day period, for a total of 1,226 claims worth $431,861 that had not been paid within 30 days. Prior legislation SB 1387 (Padilla), Chapter 403, Statutes of 2008, establishes specific requirements for overpayment notices sent by dental plans to dental providers. AB 1155 (Huffman) of 2008 would have required the director of the Department of Managed Health Care, upon a final determination that a health plan has underpaid or failed to pay a provider in violation of the Knox-Keene prohibition on an unfair payment pattern, to require the plan to pay the provider not less than the amount owed plus interest as well as pay an administrative penalty to the Managed Care STAFF ANALYSIS OF ASSEMBLY BILL 684 (Ma) Page 7 Fund not less than the amount owed the provider plus interest. Vetoed by the Governor. AB 1455 (Scott), Chapter 827, Statutes of 2000, bars health plans from engaging in unfair payment patterns in the reimbursement of providers. AB 1455 additionally includes a number of other provisions regarding payment practices of health plans, including requiring health plans to make their dispute resolution process available to non-contracting providers. Arguments in support The California Dental Association (CDA), the sponsor of this measure, writes that the current penalty is too modest to induce payers to pay claims on time, making the payment of penalties simply a cost of doing business. CDA indicates it receives a significant number of calls from its member dentists requesting assistance in dealing with issues of late payment on non-disputed dental claims. CDA states dental offices consistently reported that while routine dental procedures (such as cleanings, exams, restorations) are processed within the legally required period of time, higher cost treatments (such as extensive crowns, bridges, and removable prosthetics) take longer to be processed and paid. CDA highlights that two dental offices in particular have been struggling with $20,000 and $30,000, respectively, in outstanding claims, which is a significant financial burden to any small business. CDA argues this bill is a reasonable measure that will not impact those dental plans working within the legally required timeframe and only penalize those companies that do not. The California Medical Association (CMA) writes that an undue burden is placed on dental practices when uncontested dental claims are paid late. CMA notes that, often times, dentists, like physicians, cover the costs of the service provided to the patient upfront, and when claims go unpaid, practices run the risk of jeopardizing the cash flow of their business. Arguments in opposition The California Association of Dental Plans (CADP) believes that current law provides substantial specific penalties for late penalties, and that the DMHC has mechanisms in STAFF ANALYSIS OF ASSEMBLY BILL 684 (Ma) Page 8 place to review provider complaints and intervene when appropriate. CADP notes that its member plans report that uncontested late payments are often the result of errors by dental office personnel, and that lack of technical interface between the plan and providers, caused in some cases by handwritten claims, slow down the reimbursement process. CADP highlights that self-funded dental plans, such as those sponsored by various corporations and labor groups, are cited in sending late payments, but would not be covered by this legislation. CADP also asserts that there are a number of legal and administrative remedies, including arbitration and mediation that are available to settle private disputes about uncontested claims, and that dentists and dental insurance plans should manage their insurance relationships without state involvement. Delta Dental of California (DDC) states that, last year, Delta Dental paid nearly 30 million commercial dental claims and paid 99.995 percent of all uncontested claims in compliance with prompt payment requirements. (The number of claims processed for California totaled 16 million for 2008.) DDC asserts that late dental claims are not a problem meriting a legislative solution, existing law already sufficiently discourages late payment of claims, and that no justification exists for special, punitive treatment of dental plans. DDC points out that the regulatory standard under DMHC is 95 percent compliance with the claims payment requirement, providing support that not all uncontested claims can, realistically, be paid on time. DDC believes that collaboration between plans and providers on a solution would be a more effective way to reduce these late dental claims payments, which tend to involve more complex procedures. As an example, DDC states it would assign a special claims liaison to work with CDA and its member dentists. The Association of California Life and Health Insurance Companies, likewise, believes that the California Department of Insurance has sufficient authority to penalize insurers who demonstrate a pattern of unfair payments, and that dental insurers already have enough incentive to pay uncontested claims on time. The DMHC and the Office of the Insurance Advisor, within the State and Consumer Services Agency, state that this STAFF ANALYSIS OF ASSEMBLY BILL 684 (Ma) Page 9 bill is unnecessary. DMHC states that it received just 16 complaints, or less than one percent of the total provider complaints received by DMHC, in 2008 dealing with untimely payments to dental providers. PRIOR ACTIONS Assembly Floor: 76-0 Assembly Appropriations:15-0 Assembly Health: 15-1 COMMENTS 1.Interest in excess of 10/15 percent per year goes to regulators for specified enforcement. The current language of the bill requires interest in excess of the current 10-15 percent per year to go to regulators for specified enforcement activities. SB 1379 (Ducheny), Chapter 607, Statutes of 2008, created a separate fund to direct administrative fines and penalties for transfer into the Medically Underserved Account for Physicians and the Major Risk Medical Insurance Fund. By earmarking these interest penalties for a different purpose, this bill would depart from the precedent set by SB 1379. Additionally, the bill creates an incongruity between the type of enforcement activities that would be undertaken by DMHC and CDI, related to these additional penalty funds. The author may wish to consider whether to conform these additional penalties to SB 1379, or align enforcement activities more closely between the two regulatory entities. 2.Bill applies to claims from one category of provider. While there is evidence of late payment of claims involving dentists, there is no evidence to suggest that the problem is any more prevalent for dentists than for other types of providers. In fact, the evidence suggests that late payment of claims may be less prevalent for dentists than for other providers. Although the rate of interest tied to late claims payment already varies, depending on whether the carrier is regulated by DMHC or CDI (such as 15 percent per year under the Health and Safety Code, and 10 percent per year under the Insurance Code), it is unclear why the state should apply different STAFF ANALYSIS OF ASSEMBLY BILL 684 (Ma) Page 10 penalties on late payment of claims, depending on the provider's area of specialty, such as dentists. The author may wish to elaborate on the need for the differential interest penalty schedule. 3.Technical amendment. The reference on Page 8, lines 3, should read as follows: (C) Upon receipt of all of the information requested pursuant to this paragraph, the insurer shall process or deny the claim within the timeframe specified in paragraph(2)(1). POSITIONS Support: California Dental Association (sponsor) American Federation of State, County and Municipal Employees, AFL-CIO California Medical Association Oppose: Association of California Life and Health Insurance Companies California Association of Dental Plans Delta Dental of California Department of Managed Health Care Office of the Insurance Advisor -- END --