BILL ANALYSIS Ó
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Ed Hernandez, O.D., Chair
BILL NO: AB 1059
A
AUTHOR: Huffman
B
AMENDED: May 27, 2011
HEARING DATE: June 29, 2011
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CONSULTANT:
0
Chan-Sawin
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9
SUBJECT
Health care service plans
SUMMARY
Requires the Director of the Department of Managed Health
Care (DMHC), upon making a final determination that a
health care service plan (health plan) has underpaid or
failed to pay a provider, to require that health plan to
pay the provider the amount owed plus interest, as
specified. Prohibits a provider from being required to
resubmit a claim to the health plan, unless the Director
makes a determination that an extraordinary circumstance
exists and requires the health plan to reimburse the
provider for the cost of resubmission, as specified.
CHANGES TO EXISTING LAW
Existing law:
Provides for the regulation of health plans by DMHC in the
Knox-Keene Health Care Service Plan Act of 1975
(Knox-Keene).
Requires a health plan to pay claims, as specified, for
Continued---
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health care services provided as soon as practicable, but
no later than 30 working days after receipt of the claim by
a health plan, or if the health plan is a health
maintenance organization, no later than 45 working days
after receipt of the claim.
Prohibits a health plan from engaging in an unfair payment
pattern, and defines an "unfair payment pattern" to mean
any of the following:
a) Engaging in a demonstrable and unjust pattern of
reviewing or processing complete and accurate claims
that result in payment delays;
b) Engaging in a demonstrable and unjust pattern of
reducing the amount of payment or denying complete and
accurate claims;
c) Failing on a repeated basis to pay the uncontested
portions of any claim within timeframes required under
Knox-Keene; or
d) Failing on a repeated basis to automatically
include the interest due on claims that are not paid
within the 30 or 45 day timelines applicable for
uncontested claims.
Prohibits a health plan from delegating its liability for
an unfair payment pattern to another entity, and specifies
that penalties due to an unfair payment pattern shall not
preclude, suspend, affect, or impact any other duty, right,
responsibility, or obligation under a statute or under a
contract between a health plan and a provider.
Provides, in regulations, that a health plan's failure to
comply with claims settlement laws and regulations may
constitute the basis for disciplinary action, and
authorizes the Director of DMHC to impose civil, criminal,
and administrative remedies in any combination. Also
authorizes the Director to impose additional penalties and
remedies, including enhanced time periods for processing
claims or appointment of a claims monitor, for a health
plan the Director determines is engaged in a demonstrable
and unjust payment pattern.
Authorizes the Director to suspend or revoke a Knox-Keene
license or assess administrative penalties, as specified,
if the Director determines that the licensee has committed
violations of Knox-Keene. Also authorizes the Director to
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assess civil penalties for any violation of any Knox-Keene
law or regulation, not to exceed $2,500 for each violation.
Requires the Director, pursuant to regulations, when
assessing administrative penalties against a health plan,
to set the appropriate amount of the penalty for each
violation of Knox-Keene based on specified factors,
including but not limited to the following:
a) The nature, scope, and gravity of the violation;
b) The good or bad faith of the plan;
c) The health plan's history of violations;
d) The willfulness of the violation;
e) The nature and extent to which the health plan
cooperated with the DMHC's investigation;
f) The nature and extent to which the health plan
aggravated or mitigated any injury or damage caused by
the violation;
g) The nature and extent to which the health plan has
taken corrective action to ensure the violation will
not recur;
h) The financial status of the health plan;
i) The financial cost of the health care service that
was denied, delayed, or modified;
j) Whether the violation is an isolated incident; and
aa) The amount of the penalty necessary to deter
similar violations in the future.
Establishes, pursuant to regulations, requirements that
health plans must implement in their claims settlement
practice, including timeliness standards for the
adjudication of complete claims, mandatory contract
provisions, mandated acknowledgements and disclosures and
mandatory health plan provider dispute resolution
procedures.
Prohibits a health plan from rescinding or modifying an
authorization for a specific type of treatment after the
provider renders the health care service in good faith and
pursuant to the health plan's authorization.
This bill:
Requires the Director, upon a final determination that a
health plan has underpaid or failed to pay a provider in
violation of Knox-Keene requirements related to unfair
payment practices, to require the health plan to pay the
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provider an amount not less than the amount owed plus
interest.
Prohibits a provider from being required to resubmit a
claim to a health plan in order to receive payment, unless
the Director (1) makes a determination that an
extraordinary circumstance exists, and (2) requires the
health plan to add to the amount owed to the provider a
reasonable amount necessary to reimburse the provider for
the cost of resubmission.
Specifies that the remedies provided by this section are
not exclusive, and permits them to be sought and employed
in any combination with civil, criminal, and other
administrative remedies deemed warranted by the Director to
enforce health plan licensure provisions in statute.
Requires the calculation of the amount of the penalty
imposed to be based on the date on which the health plan
committed the violation, as specified.
Prohibits a health plan from being required to pay a
provider more than the amount owed plus interest on a
claim, and permits DMHC to take into account any other
payments that have been made on that same claim.
Prohibits a health plan from delegating its statutory
liability under this bill.
FISCAL IMPACT
According to the Assembly Appropriations Committee
analysis, there would be potential for increased staffing
costs to DMHC, estimated in the range of $1 to $2 million
(special fund) to review and assess provider complaints,
and for increased enforcement to ensure that penalties are
assessed and providers are paid according to the provisions
of this bill. Staffing costs are uncertain, due to unknown
health plan and provider behavior in response to the bill's
provisions.
BACKGROUND AND DISCUSSION
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According to the author, DMHC has consistently failed to
take enforcement actions against health maintenance
organizations (HMOs) that violate laws intended to protect
providers. When DMHC has taken action, the penalty amounts
are small in relation to the economic injury to physicians.
The author further states that DMHC also has been
intolerably slow to address provider complaints, has often
refused to apply enforcement actions to cover the entire
period of underpayment, and has not required HMOs to pay
physicians even after it has determined that payment should
have been made. According to the author, HMOs make
economic decisions to violate the law, knowing that any
penalty amount that may be imposed will be outweighed by
the extra revenue the HMOs will generate by underpaying for
medical services in violation of the law.
DMHC regulation of claims payment
Before the DMHC can begin a review, the provider is
required to submit the dispute to the health plan's Dispute
Resolution Mechanism, for a minimum of 45 working days or
until receipt of the health plan's written determination,
whichever period is shorter. Claims not resolved through
the plan's process may be referred to DMHC's Provider
Complaint Unit (PCU), established in September 2004.
DMHC also has a six-month pilot Independent Dispute
Resolution Process (IDRP) to adjudicate claims disputes for
non-contracted providers of emergency hospital and
physician services for HMO enrollees in what DMHC refers to
as "a fast, fair, and cost-effective way to resolve claim
payment disputes with health care service plans and their
capitated providers." The Maximus Center for Health
Dispute Resolution (CHDR) has been selected by the DMHC to
conduct an independent review and render the decisions in
provider payment disputes during the pilot program. The
CHDR, a nationally accredited health appeals organization,
serves more than 25 other states in the role of reviewer of
appeals made by health plan enrollees, as well as
performing reviews for the federal Centers for Medicare and
Medicaid Services. By submitting a claim dispute through
the IDRP, the provider agrees not to invoice, balance bill,
or otherwise seek to collect any payment from the health
plan enrollee, except for applicable co-payments and
deductibles.
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In addition to recovering disputed payments for providers,
DMHC reports that through February 2011, the PCU levied
more than $650,000 in fines to health plans which it
determined had improperly paid claims in violation of state
law. DMHC reports that the fines include two fines
totaling $350,000 against Health Net in 2005 for making
incorrect payments to emergency doctors and contracted
health care facilities, $200,000 against Blue Cross for
failing to properly pay interest and penalties on late
claims, and $50,000 against Blue Shield for making payments
directly to patients instead of providers.
According to DMHC, from January 1, 2011, to the present,
the PCU has received 2,652 provider complaints, prosecuted
10 matters involving claims payment violations, and
assessed $531,000 in penalties. In addition, DMHC has
received 31 applications to participate in the IDRP to
resolve provider grievances. According to DMHC, the PCU
generally does not review complaints related to whether a
health plan is appropriately paying usual and customary
charges for services provided by providers who are not
under contract with health plans, but DMHC is in the
process of amending the existing payment criteria to
facilitate such review.
Prior legislation
SB 1379 (Ducheny), Chapter 607, Statutes of 2008, creates
the Managed Care Administrative Fines and Penalties Fund
which receives revenues from fines and penalties levied
against health plans. Directs the first $1 million dollars
deposited into the fund annually to the Steven M. Thompson
Physician Corps Loan Repayment Program, and the remainder
to the Major Risk Medical Insurance Program to fund health
care for individuals who are denied coverage in the
individual market.
AB 1155 (Huffman) of 2007 was substantively similar to this
bill. The Governor's veto message stated that current law
already provides DMHC with adequate authority to assess
penalties, that DMHC has taken a number of actions to
resolve payment disputes, and that physicians should make
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use of the IDRP. Vetoed by the Governor.
SB 1823 (Dunn) of 2006, among other things, would have
increased penalties against health plans and medical groups
for underpayments to medical care providers, as specified,
and would have required public disclosure about complaints
made by providers against health plans and medical groups,
as specified. Held in Senate Banking, Finance and
Insurance Committee.
SB 1177 (Perata), Chapter 825, Statutes of 2000, among
other things, prohibits a health plan from engaging in an
unfair payment pattern, as defined, in its reimbursement of
a provider, authorizes the Director to investigate a report
of this conduct, and permits a provider to report this
conduct to DMHC. Increases the interest rate of an
uncontested provider claim that is not paid by the health
plan within a prescribed time period to 15 percent per
annum and imposes a $10 charge on a plan that fails to
automatically include this interest amount in its payment
to a provider.
AB 1455 (Ducheny), Chapter 827, Statutes of 2000,
establishes new requirements for prompt payment of provider
claims by health plans, defines and prohibits unfair
payment practices, and permits DMHC to impose monetary
penalties when unfair payment practices are identified.
DMHC adopted regulations pursuant to this chapter requiring
health plans to maintain an IDRP.
Arguments in support
The California Chapter of the American College of Emergency
Physicians (cal/acep), the sponsor of the bill, writes that
AB 1059 would ensure that when a health plan is found to
have underpaid physicians, the physician is paid the
correct amount without incurring even more costs due to
having to resubmit claims. CAL/ACEP states that, in some
instances when DMHC has taken an enforcement action against
a health plan for underpaying physicians, DMHC requires the
physician to resubmit their claim to obtain full payment.
For emergency physicians, the amount of underpayment is
often less than $100 and the cost to find the old claim and
resubmit is more than the amount of underpayment, forcing
the physician to lose even more money when seeking
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restitution. CAL/ACEP argues that enforcement actions by
DMHC often allow the offending health plan to profit on
their illegal act, and cites a 2004 case in which DMHC
found that Health Net underpaid physicians between $6
million and $7 million over a 9 month period. In that
case, the penalty issued was a $250,000 fine and $750,000
in restitution to physicians, which allowed Health Net to
profit by their illegal activities by more than $5 million.
The California Psychological Association writes that,
despite previous efforts to address widespread payment
abuses by HMOs, there are still patterns of late payments,
non-payments, and consistent denials of payment after
providing prior authorization for the service. The
California Society of Anesthesiologists states that,
although anesthesiologists provide services that are
mandated by law in emergency situations, some health plans
try to underpay for essential services. The California
Academy of Family Physicians states that many primary care
offices are operating on razor thin fiscal margins and
financial gaming of those who have lawfully provided
valuable health care services is a dangerous gamble with
California's already depleted primary care workforce. The
California Medical Association writes that this bill
ensures physicians who are victims of HMOs breaking the law
are made whole, deters future violations of the law by
ensuring sufficient penalties are assessed, and protects
the health care delivery system and patient care by
ensuring physicians are financially capable of providing
service for patients. The California Psychiatric
Association states that this bill's provisions are common
sense and clarify existing law with respect to fairness in
managed care organizations dealings with physician
providers.
Arguments in opposition
Health Net raises concerns that AB 1059 could preclude a
health plan from seeking indemnification from a contracted
provider in the event the plan is held responsible for an
unpaid or underpaid claim that a medical group, through a
delegated contract, has taken responsibility for provider
services.
The California Association of Health Plans raises concerns
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that the prohibition barring health plans from requesting
that providers resubmit claims will make it difficult for
health plans to accurately compute the correct amount of
the provider reimbursement.
The California Association of Dental Plans (CADP) states
that current law already requires health plans to pay
providers what they are owed in a timely fashion, and
provides substantial specific remedies for dentists who are
concerned about late or insufficient payments from plans.
CADP argues that AB 1059 will create an additional
administrative burden that is unnecessary and will only
result in higher administrative costs for DMHC, which will
ultimately be reflected in higher premiums to consumers.
PRIOR ACTIONS
Assembly Health: 11- 4
Assembly Appropriations:12- 5
Assembly Floor: 49- 26
COMMENTS
1. Delegation of payment to medical groups. Under the
delegated model, medical groups assume the cost for health
care services provided by providers in return for a
predetermined monthly per member per month reimbursement.
Current state statutes and regulations regarding patterns
of unfair payment practices specify that health plans may
not delegate any statutory liability due to unfair payment
practices, but specify that such penalties do not preclude,
suspend, affect, or impact a contractual arrangement
between a health plan and provider. This later provision,
established in Health and Safety Code Section 1371.37 (f),
allows health plans who have delegated provider services to
a medical group to settle claims and recoup payment from
the medical group. AB 1059 only specifies that health
plans may not delegate any statutory liability. The author
may wish to amend the bill to allow health plans to recoup
such costs from medical groups who have assumed the
responsibility to pay for provider services.
2. Technical amendment. Current law requires plans, in
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the event a claim is not reimbursed within the timeframes
specified in current law (30 days in general, 45 days for
HMOs), to pay the greater of $15 dollars per year or
interest at the rate of 15 percent per year. A technical
amendment is needed to conform this bill to current law.
(a) On page 2, strike out lines 10-11 inclusive and
insert:
require the health plan to pay the provider an
amount to include the amount owed plus interest
pursuant to Health and Safety Code 1371.35 (b) and
(e).
POSITIONS
Support: American College of Emergency Physicians,
California Chapter (sponsor)
California Academy of Family Physicians
California Association of Marriage and Family
Therapists
California Medical Association
California Psychiatric Association
California Psychological Association
California Society of Anesthesiologists
California Society of Dermatology and
Dermatologic Surgery
Oppose:California Association of Dental Plans
California Association of Health Plans
HealthNet
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