Law Passes to Pay Docs Insurance companies can no longer "pass the buck"

by Shellie Pruden DCMS director of medical practice relations

On July 23, 2003, PacifiCare of Texas, Inc., entered into an agreement with the Texas Attorney General and the Texas Department of Insurance over claims disputes relating to Heritage Southwest Medical Group, PA, and Heritage Physicians Network. This landmark agreement marks the first lawsuit using a law that prevents an insurance company from delegating responsibility to a third party without strict monitoring and intervention when the process is failing. The agreement covers payment of delegated and nondelegated claims relating to services provided to patients through Heritage Southwest and Medical Select Management, two IPAs currently in bankruptcy. The agreement was struck in order to avoid expensive, complex, and lengthy litigation.

In a typical bankruptcy, creditors (including physicians) usually receive only a small distribution on unpaid claims from the limited assets owned by the bankrupt company. With respect to HSW and MSM however, the litigation filed by the AG against PacifiCare may result in additional funds being contributed by PacifiCare for payment of provider claims through the bankruptcies.

A 1999 law, passed with the support of the Texas Medical Association, gave the AG authority to pursue PacifiCare for payment of these claims. Article 20A 18C of the HMO Act prohibits a health plan's agreement with the delegated entity to "…limit in any way the health maintenance organization's authority or responsibility, including financial responsibility, to comply with all statutory and regulatory requirements." This includes prompt payment of claims. In fact, the statute states "health maintenance organization to ensure compliance with statutory or regulatory requirements." Eighty percent of the outstanding claims in the HSW bankruptcy are PacifiCare claims. Under the HMO Act, PacifiCare could be held liable for payment of all of the outstanding claims. Rather than pursue litigation, the AG and PacifiCare have entered into a stay of the lawsuit for 12 months, allowing PacifiCare time to pursue settlement agreements with the physicians. This agreement gives PacifiCare eight months to strike a bargain with 90 percent of the physician creditors in the pending bankruptcy, or the AG can pursue litigation against PacifiCare for payment of the claims.

The Attorney General's office believes if 90 percent of providers agree to the proposed settlement with PacifiCare under the bankruptcy, it's an acceptable deal. If 90 percent of the physicians do not accept the PacifiCare settlement, the AG and PacifiCare must meet again to discuss alternatives, including an extension of time or modifications to proposed settlement. If PacifiCare and the AG do not agree on an alternative, the AG will move forward with its litigation against PacifiCare.

This will result in a flurry of activity over the next few months. The AG has given PacifiCare 120 days to reach a settlement agreement with the bankruptcy trustee; the agreement then be submitted to the physicians for acceptance or rejection. When the proposed settlement between the bankruptcy trustee and PacifiCare is finalized, PacifiCare will have 90 days to solicit providers' acceptance and another 30 days to make payment.

Under the terms of the proposed bankruptcy settlement, physicians may be required to accept or reject the proposed settlement before knowing which of their claims PacifiCare and the bankruptcy trustee consider valid and payable. Under the proposed PacifiCare criteria for an allowable claim, a significant number of provider claims will not be eligible for payment. That criteria will include eligibility, medical necessity, timely filing, and preauthorization. Because claims will be processed using the Heritage Southwest database, timely filing and preauthorization may be used to eliminate a majority of the claims. The HSW depositions revealed that the Heritage database improperly rejected claims for no authorization and showed claims were not timely filed when some providers had certified mail receipts that proved timely filing. Evidence also exists that claims were filed by medical practices but not "received" by HSW for processing. Physicians may accept the agreement before having their claims put to the payment eligibility test, they may refuse to accept the settlement before a determination is made regarding claims eligibility for payment, or they may pursue other legal alternatives to the bankruptcy option.

Under the terms of bankruptcy, the trustee can sue any creditor to recover money that was paid preferentially 90 days before the bankruptcy was filed. This gives a bankruptcy trustee an opportunity to ensure a more even distribution of the limited funding available to pay outstanding claims. Although a number of these recovery actions have been filed, the bankruptcy trustee hasn't pursued these actions in order to avoid the cost of additional litigation. In the settlement agreement, the AG included language that requires the parties involved to use reasonable efforts to dismiss these cases filed to recover the preferential payments. A list of creditors that allegedly received preferential payment is available. For more information, contact your attorney or Bonnie Weikel, DCMS chief operating officer, at 214-948-3622 or weikel@dallas-cms.org.