BILL ANALYSIS �
AB 1059
Page 1
Date of Hearing: April 5, 2011
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
AB 1059 (Huffman) - As Introduced: February 18, 2011
SUBJECT : Health Care Service Plans.
SUMMARY : Requires the Director of the Department of Managed
Health Care (DMHC) to assess an administrative penalty, and to
require the health plan found to be in violation to pay the
provider the amount owed plus interest, when the Director makes
a final determination that a health care service plan (health
plan) has underpaid or failed to pay a provider in violation of
applicable provisions of the Knox-Keene Health Care Service Plan
Act of 1975 (Knox-Keene), as specified. Specifically, this
bill :
1)Requires the DMHC Director, upon a final determination that a
health plan has underpaid or failed to pay a provider in
violation of Knox-Keene requirements, to by order do both:
a) Assess an administrative penalty in an amount not less
than the amount owed plus interest; and,
b) Require the health plan to pay the provider an amount
not less than the amount owed plus interest.
2)Permits the DMHC Director to exempt a plan from paying the
administrative penalty if he or she makes a written finding
that paying that penalty and making the payment would
jeopardize the financial solvency of the plan.
3)Permits the DMHC Director, if he or she determines that an
extraordinary circumstance exists, to require a provider to
resubmit a claim in order to receive payment, provided that
the Director also requires the plan to add to the amount owed
to the provider a reasonable amount necessary to reimburse the
provider for the cost of resubmission. Otherwise, prohibits a
provider from being required to resubmit a claim to a health
plan in order to receive payment.
4)Makes the remedies provided by this section not exclusive, and
permits them to be sought and employed in any combination with
civil, criminal, and other administrative remedies deemed
warranted by the DMHC Director to enforce the provisions of
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this bill.
5)Requires the calculation of the amount of the penalty imposed
to be based on the date on which the plan committed the
violation.
6)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.
7)Prohibits a health plan from delegating a statutory liability
under this section.
EXISTING LAW :
1)Prohibits in law and regulation a health plan from engaging in
an unfair payment pattern, defined 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.
2)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 DMHC Director to impose civil, criminal, and
administrative remedies in any combination, and in addition
authorizes the Director to impose additional penalties and
remedies, including enhanced time periods for processing
claims or appointment of a claims monitor, for a plan the
Director determines is engaged in a demonstrable and unjust
payment pattern.
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3)Authorizes the DMHC Director, after notice and opportunity for
an administrative hearing with the licensee that is the
subject of the action, to by order suspend or revoke a
Knox-Keene license or assess administrative penalties, if the
Director determines that the licensee has committed any of the
acts or omissions constituting grounds for disciplinary action
outlined in Knox-Keene law and regulations.
4)Authorizes the DMHC Director to assess civil penalties for any
violation of any Knox-Keene law or regulation not to exceed
$2,500 for each violation.
5)Requires the DMHC 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 plan's history of violations;
d) The willfulness of the violation;
e) The nature and extent to which the plan cooperated with
the DMHC's investigation;
f) The nature and extent to which the plan aggravated or
mitigated any injury or damage caused by the violation;
g) The nature and extent to which the plan has taken
corrective action to ensure the violation will not recur;
h) The financial status of the 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.
6)Establishes, pursuant to regulations, requirements 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.
7)Prohibits a health plan from rescinding or modifying an
authorization for a specific type of treatment after the
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provider renders the health care service in good faith and
pursuant to the health plan's authorization.
FISCAL EFFECT : This bill has not yet been analyzed by a fiscal
committee.
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author, DMHC has
consistently failed to take enforcement actions against health
maintenance organizations (HMOs) that violate the law intended
to protect providers. When it 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, often refuses
to apply enforcement actions to cover the entire period of
underpayment, and has not required HMOs to pay physicians even
after it has determined payment should have been made.
Accordingly, 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, for
example, underpaying for medical services in violation of the
law.
2)BACKGROUND . AB 1455 (Scott), Chapter 1827, Statutes of 2000,
prohibits unfair claims practices and the resulting
regulations, which took effect January 1, 2004, set forth
detailed requirements that plans must meet in processing and
paying claims for both contracting and non-contracting
providers. On September 20, 2004, DMHC introduced a Provider
Complaint Unit (PCU) which eventually included an automated
Web-portal to allow health care providers to electronically
submit claim reimbursement complaints. According to DMHC,
through March 24 of this year, the PCU received more than
5,400 complaints resulting in more than $1.4 million in
recovery payments to California doctors and hospitals. Of the
claims received, approximately 20% came from hospitals with
the remaining number from other provider categories, including
physicians. Additional recovery fees might have been received
by providers but 1,790 providers did not complete the
application to receive reimbursement. According to DMHC, PCU
generally does not review complaints related to whether a plan
is appropriately paying usual and customary charges for
noncontracted providers but DMHC is in the process of amending
the existing payment criteria to facilitate such review.
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In addition to recovering disputed payments for providers, DMHC
reports that through February of this year, the PCU levied
more than $650,000 in fines to 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. As part of the settlement agreements, in some
cases, DMHC also may negotiate with the plans to revise
internal procedures, which may include auditing all provider
claims during the timeframe in question or to contribute funds
to specific programs, for example, requiring Blue Shield to
contribute $200,000 to support the pilot project in
independent dispute resolution discussed in 3) below.
3)Pilot Independent Dispute Resolution Process . DMHC has
established a six month pilot Independent Dispute Resolution
Process (IDRP) to afford non-contracted providers of emergency
hospital and physician services for HMO enrollees 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 six-month pilot IDRP is
voluntary for both non-contracted providers and payers, and
DMHC states that the pilot will provide a model for the DMHC
to study and use as it begins to structure an eventual
permanent dispute process. The pilot IDRP is employing a
"baseball style" arbitration model, so called because major
league baseball contract disputes are resolved by an
arbitrator, with each side presenting what it feels is a
reasonable salary, and the arbitrator then choosing one of the
two salaries. According to DMHC, baseball style arbitration
encourages the two parties to negotiate realistically, or risk
having the other side's proposal accepted. 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
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provider agrees to not invoice, balance bill, or otherwise
seek to collect any payment from the health plan enrollee,
except for applicable co-payments and deductibles.
4)PREVIOUS LEGISLATION . AB 1155 (Huffman) of 2008 contained
substantially similar provision to this bill. AB 1155 was
vetoed by Governor Schwarzenegger, who stated:
Current law already gives broad authority to the Department
of Managed Health Care (Department) to assess
administrative penalties against health plans for a variety
of violations, including unlawful provider payment
practices of health plans.
The Department has taken a number of actions to resolve
payment disputes between plans and providers. Since the
creation of the Department's provider complaint unit, it
has assisted providers in recovering $5.8 million in
reimbursements. The Department has also collected over
$4.2 million in fines as a result of plans' failure to pay
claims in a timely manner and based on other related
violations of law.
It is ironic that the Department created an independent
dispute resolution process as another mechanism to ensure
the appropriate payment of non-contracting providers. Thus
far, physicians have not utilized this process. Instead,
many continue to engage in the practice of billing the
patient when the plan and provider cannot agree on
reimbursement. Providers should stop putting the patient
in the middle of their payment disputes, and start
developing a more comprehensive solution instead of a
one-sided approach that AB 1155 represents.
5)support . The California Chapter of the American College of
Emergency Physicians (cal/acep) writes that currently law
requires health plans to reimburse physicians fairly and
timely and gives DMHC the authority to enforce the law,
however every single enforcement action has allowed the
offending health plan to profit on their illegal act. As an
example, CAL/ACEP cites a 2004 case in which DMHC found that
Health Net underpaid physicians between $6 million and $7
million over a nine month period, yet the penalty issued was a
$250,000 fine and $750,000 in restitution to physicians.
CAL/ACEP states that this bill would put an end to that. The
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California Psychological Association writes that despite
previous efforts to address widespread payment abuses engaged
in 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 anesthesiologists
provide services that are mandated by law in emergency
situations, there are health plans who try to underpay for
essential services rendered. 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
organization dealings with physician providers.
6)opposition . The California Association of Health Plans states
that this bill would mandate fines on health plans in all
instances of violation of statutes regarding provider payment,
no matter how small or trivial, and such an increase in fines
on health plans will increase health care costs by stripping
DMHC of its discretion in reviewing violations. The
California Association of Health Underwriters states that
while this bill is well-intended, the unintended consequence
will be higher premiums and that an administrative penalty
mandate in virtually all cases of an underpayment creates a
chilling effect where carriers will be less inclined to
closely scrutinize reimbursement requests of providers.
REGISTERED SUPPORT / OPPOSITION :
Support
California Chapter of the American College of Emergency
Physicians (sponsor)
California Academy of Family Physicians
California Medical Association
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California Psychiatric Association
California Psychological Association
California Society of Anesthesiologists
Opposition
California Association of Health Plans
California Association of Health Underwriters
Analysis Prepared by : Melanie Moreno / HEALTH / (916)
319-2097