Merritt Personal Lines Manual: HMO Claims Payment Procedures

For years, doctors and hospitals have complained that health maintenance organizations fail to pay them in a timely manner. State insurance departments have collected such complaints on nearly every major HMO in the United States.

HMOs cite a series of reasons for the problem, including, but not limited to:

• their computers,
• the status of plan members and
• doctors and hospitals that file incomplete or inaccurate claim forms.

In Florida, the state Agency for Health Care Administration and the Insurance Department met with the HMOs and health care providers to address the issue. As expected, they didn't agree on much. So, the doctors and hospitals went to the legislature for help. The result: a law that required HMOs to pay 10 percent interest per year for any claim that was not paid within 120 days.

In January 1999, the New York State Insurance Department levied fines totaling $72,200 against 12 health insurance companies and HMOs for violations of New York's prompt-pay law, the first such action taken under the then year-old statute.

The law required insurance companies to pay undisputed claims within 45 days or face fines as high as $500 per claim per day, capped at $5,000 per claim. In this first round of violations, insurance companies that had 10 or more confirmed violations between April and September 1998 were only penalized $100 per claim paid late.

The fines effectively put payers on notice that the state will not tolerate tardy payment, said Allison Klimerman, director of public affairs for the Insurance Department.

The hardest-hit company was Connecticut-based Oxford Health Plans, which was fined $40,900. Among payers, Capital District Physicians' Health Plan (CDPHP) was fined $4,200; Community Health Plan, part of Kaiser Permanente Northeast Division, was fined $2,700; HUM Healthcare Systems (parent of Partners Health Plans) was fined $2,000; and WellCare of New York Inc. was fined $2,600. Dan Colacino, vice president of marketing for CDPHP, said the HMO was slow to pay a certain type of claim between April and September. The claims were related to a medical code that required a review before payment and the reviews were taking too long -- a situation CDPHP had corrected.

Even if all of the alleged late payments were in fact late, they would represent a tiny portion of the claims CDPHP processed and paid during the six months the Department considered, Colacino said. The HMO handled about 2.2 million claims annually for the 210,000 people it covers.

In Texas, health plans were being told to pay on time or face penalties, as a result of an investigation by the Deptartment of Insurance in January 1998.

According to former Texas Insurance Commissioner Elton Bomer, the investigation concluded that major managed care plans in Texas -- including Aetna/U.S. Healthcare, Cigna, Humana, PacifiCare, Prudential and Blue Cross Blue Shield -- were not consistently complying with a new law requiring them to pay doctors, hospitals and other health providers within 45 days of receiving a clean claim. The law also required HMOs to pay primary care physicians within 60 days after a patient selects his or her doctor.

The Department received hundreds of complaints from doctors about slow payments from health plans, said Texas Insurance Department representative Mark Hanna. Some examples:

• Phil Berry, an orthopedic surgeon in Dallas and president of the Texas Medical Association, estimated it took from four to six months to receive payments on some claims. Often, he said, his office sent in a claim to a health insurance company with all the questions answered and the appropriate documentation attached, only to get the claim back without the attached documents, along with a letter stating that the claim was missing information. "You can still see the staple marks where we attached the documentation," said Berry.
• Robert Gunby, an obstetrician-gynecologist and president of the Dallas County Medical Society, estimated that his practice had at any given time about $80,000 to $90,000 in unpaid claims. Frequently, three months would elapse between the time a patient was treated and the claim was paid, Gunby estimated.

Texas HMOs insisted that most delays in processing claims were caused by errors by the group submitting the claim, such as sending in claims with incomplete or inaccurate information. Claims often were missing code numbers or were filled out in such a way that computers could not scan the forms.

Physicians suspected other reasons. Many believed insurance companies deliberately stall on paying claims to earn more interest on their money. Insurance companies that don't pay on time will face penalties ranging from fines to revocation of their licenses.

Some state regulators suspect some companies were deliberately stalling because of financial problems.