By Christopher Guadagnino, Ph.D.

Pa. state Rep. Nicholas A. Micozzie

Published June 2000

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Pa.’s Quality Health Care Accountability and Protection Act (Act 68) took effect on Jan. 1, 1999, and the regulations promulgated by state regulators will determine how patients and physicians can use the law and whether it will redress perceived problems and abuses by the state’s managed care industry. Although the statute and regulations promise a number of improvements for patients and physicians, some key concerns remain.

Among the Act’s provisions is a requirement that Pa.’s managed care plans—HMOs, point of service plans and gatekeeper PPOs—pay "clean" provider claims within 45 days of receipt or be subject to a 10 percent interest penalty. Final regulations for Act 68 released in March by the Pa. Department of Insurance (DOI) appear to leave enough slack to make it difficult for physicians to use this timely payment provision systematically.

The Pa. Department of Health (DOH) has submitted for public comment proposed regulations for Act 68 which raise a number of concerns by the consumer and physician community, including an apparent lack of oversight of managed care plans’ definitions of medical necessity, a key issue in determining what covered services a patient may receive, and the complexity of the complaint and grievance process.

Impact So Far

Under Act 68, DOH and DOI are authorized to obtain an injunction to prohibit any activity that violates the statute or impose a civil penalty of $5000 per violation, while DOH may also issue an order to temporarily prohibit a managed care plan from enrolling new members or require a plan to develop and adhere to a plan of correction.

DOI has thus far fined at least eight managed care plans for failing to comply with Act 68’s requirement to disclose various materials to enrollees, including UPMC Health Plan, HealthAmerica, Prudential Healthcare, CIGNA HealthCare, Capital Blue Cross, Horizon Healthcare, QualMed and United States Health Care Systems of PA.

More extensive market conduct examinations by DOI have led to three health plans paying fines for a variety of violations including Act 68’s timely provider payment provision: Penn State Geisinger Health Plan for $150,000; Keystone Health Plan Central for $65,000; and HealthCentral Inc. for $490,000, the largest fine ever levied against an HMO by the DOI.

DOI said it plans to investigate the majority of Pa.’s managed care plans and has been engaged in a market conduct examination of "a significant number" of them for several months, according to Department spokesperson Angela Yarbrough.

Although DOI would not confirm investigations of specific plans, a complete audit of Independence Blue Cross was requested by the Delaware Valley Healthcare Council (DVHC), which had submitted a complaint to DOI two years ago about the insurer’s claims processing delays, according to DVHC executive Len Carp. DVHC has met with DOI as recently as May to discuss its request, which Carp said DOI is considering.

In addition to its market conduct examinations, said Yarbrough, DOI launched a "data call" last summer requesting all of Pa.’s managed care plans to submit tallies of how many reimbursement claims each plan has received, how many were paid and unpaid, how many were adjudicated as "clean," i.e., without defect or impropriety, and how many were disputed. A report of that data, expected to be completed by June, will be made public and DOI plans to use it in concert with its market conduct exams to ensure that managed care plans are complying with Act 68, Yarbrough added. In the meantime, DOI encourages physicians to submit complaints over prompt payment violations and is currently reviewing a number of them, she said.

Act 68 spells out an elaborate dispute resolution process by which managed care enrollees may appeal coverage denials by their plan. Depending upon the nature of the dispute—a coverage issue is a complaint, and a medical necessity or appropriateness of care issue is a grievance—an enrollee must file either a written complaint or grievance with the plan, which has 30 days to review it internally by a committee of employees, followed by five days to communicate its decision. A second level of internal review is then available in which the plan has 45 days to review it by a new committee composed of at least one-third non-employees of the plan and five days to communicate its decision. If still denied coverage, an enrollee receives instructions on how to file an external appeal with either DOI for complaints or DOH for grievances.

Through April, DOI has adjudicated 113 third-level complaints, 72 in favor of the health plan, and 41 in favor of the enrollee, noted Yarbrough.

To date, DOH has adjudicated 45 grievances since Act 68’s implementation using one of three utilization review entities it has thus far certified, rotating cases among the entities, said Stacy Mitchell, director of DOH’s Bureau of Managed Care. The external review is typically conducted by a single physician of the same or similar specialty as the physician whose care decision was denied, who conducts a paper review of the documentation accumulated up to that point, Mitchell explained, adding that 23 of the cases were resolved in favor of the health plan and 22 in favor of the enrollee.

Running parallel to Act 68 is the Pa. Attorney General’s Health Care Unit, announced this Feb., which can handle consumer complaints concurrently with complaints or grievances filed through the Act 68 resolution channels, according to Lawrence M. Otter, Esq., the attorney in charge of the Unit. The Unit is empowered to mediate disputes and can take legal action—including criminal—on behalf of consumers against health insurers that engage in deceptive and unfair practices, including insurers not covered under Act 68, such as PPOs, traditional indemnity plans, and self-funded employer groups, said Otter, who notes that the Unit has in fact already assisted in restoring coverage of an experimental treatment for a patient covered by a non-gatekeeper PPO.

Remaining Concerns

The PMS and the Pennsylvania Health Law Project praise various provisions of Act 68, including:

• Timely claims payment provision.

• Limitations on provider de-credentialing, including prohibiting termination of providers involved in the complaint or grievance process or providers with a substantial number of patients with expensive medical conditions, and requiring concrete credentialing criteria.

• Prohibition against gag clauses in provider contracts.

• Various disclosure requirements of health plans.

• Continuity of care requirements.

• Prudent layperson standard for emergency care.

• Formal professional qualifications for reviewers of coverage denials.

• External review mechanism for appealing coverage denials.

A topic of extensive debate, both during the drafting of Act 68 and the public comment period over draft DOI regulations, was the definition of "clean claim." The statute defines it as having "no defect or impropriety," which it defines as including "lack of required substantiating documentation or a particular circumstance requiring special treatment which prevents timely payment from being made on the claim."

In its comments submitted before finalization of DOI’s draft regulations for Act 68, PMS suggested that DOI clarify the definition of clean claim by using as criteria the services listed on the HCFA 1500 form. According to Don McCoy, director of Regulatory Affairs of the PMS, confusion still exists among physicians over what constitutes a clean claim and how to track the status of claims received by health plans. Neither the statute nor the DOI regulations require plans to notify providers of any suspension of claims or provide reasons for suspension. Some plans do send such acknowledgments but others do not, and in the absence of a notification requirement, physicians are still experiencing delayed payment problems with plans alleging computer problems and lost claims, McCoy said.

PMS is constructing a member survey to track the fate of disputed claims. "If this data and the health plan claim information that the Insurance Department is tracking varies, that gives them a basis for investigation and the Insurance Department has indicated that they’re going to be active in that investigation," said McCoy.

DOI is not supposed to re-define clean claim in its regulations because Act 68 contains a definition, said Geoff Dunaway, director of DOI’s Accident and Health Bureau. Final DOI regulations require managed care plans to provide written disclosure to providers of all the data elements necessary to insure that a claim is without defect or impropriety and meets the definition of clean claim under Act 68, noted Dunaway, who said this requirement for specific written information in advance reflects a stronger requirement than what existed before Act 68.

As for plans notifying providers of receipt of claims or their status, said Dunaway, DOI proposed a requirement like that to the legislators as Act 68 was being developed, but it was rejected. "We did not believe that we had the authority to regulate a requirement that the legislature had specifically excluded," Dunaway noted.

DOI regulations do say that, if providers request the status of a claim during the first 45 days of its submission to a managed care plan, the plan has 45 days to respond. If the request is made after the initial 45 days, the plan must respond within 30 days. The plan is subject to interest and penalty if it exceeds 45 days from receipt of a clean claim and providers submit a prompt payment complaint to DOI’s Bureau of Consumer Services, Dunaway said. "The Department believes that providers and payors should work together. The statute was not intended for the Insurance Department to be a bill collector," Dunaway added.

"The Insurance Department’s abdication of authority means that providers have to be very strategic about how to implement the prompt payment provision of Act 68," declared R. Michael Kemler, Esq., a health care attorney in Philadelphia who advises physicians’ billing administrators to maintain a prompt payment computer file which records, in a tickler fashion, the date 45 days in advance of every claim submission so that inquiries can be made immediately. "The complaint apparatus must be diligently pursued," said Kemler, "And physicians should consider joint complaints in order to alert DOI to a systematic practice that requires focused enforcement attention," which Kemler believes is more likely when a large number of complaints are filed about a particular payment practice and/or against a single plan.

Rep. Nicholas A. Micozzie (R-Delaware), who chairs the Pa. House Insurance Committee and is a member of the House Health and Human Services Committee, said he held numerous hearings and meetings on various issues pursuant to drafting a final version of Act 68 and its DOI regulations. He said he has met with the physician community, including the PMS, who expressed concern over the lack of a clear definition of clean claim and lack of notification requirements, and said he would be willing to consider statutory amendments to Act 68 that would address those concerns only if significant problems occurred with implementing the current statute and DOI regulations and the provider and insurance community could come up with some kind of compromise.

"I probably could put something together and get the Insurance Committee to pass it, but when it gets to the House floor, with the influence that the insurance industry has on the members, I won’t do anything unless I’m sure it’s going to become law. Just getting the 45-day limit was a difficult compromise," said Micozzie.

A second area of great concern to physicians is the absence of a medical necessity definition in Act 68, the DOI regulations and the DOH proposed regulations, essentially allowing each managed care plan to adopt its own definition. In a letter submitted to DOH, PMS argued that "a health care provider should not have to consider which plan the patient is covered under before determining whether the treatment needed by the patient will be determined to be medically necessary by the plan."

DOH’s Stacy Mitchell said that the Department is reviewing all comments received and hopes to release its finalized regulations in July’s Pennsylvania Bulletin. She acknowledged that an earlier draft version of the DOH regulations required managed care plans to adopt and maintain a definition of medical necessity which is consistent with national industry standard definitions, is not unduly restrictive and does not rely on the sole interpretation of the plan’s medical director. DOH removed that guideline for its proposed regulations because it believed that it would not have passed the Independent Regulatory Review Commission because the language of medical necessity is contained within contractual terms in the enrollee and group subscriber agreement. "The Department of Health does not have jurisdiction over enrollee documents, which is where that definition is found," Mitchell added.

Further, Mitchell argued, the guideline would have been difficult to enforce anyway, given that there are no recognizable industry or national standards for medical necessity. "A definition of medical necessity is not as important to the ultimate determination as is the amount of research, documentation and peer review literature that goes into determining what are acceptable treatments and services," Mitchell said, noting that the appeals process is better equipped to adjudicate those fine details in a given case

Act 68 requires simply that a managed care plan adopt and maintain a definition of medical necessity that it uses in determining health care services, and make that information available to consumers, DOI and DOH. Proposed DOH regulations would simply require that the definition of medical necessity used by a given managed care plan be consistent throughout all documents related to its operations.

Perhaps most startling of all is that the statute does not appear to require approval, either by DOI or DOH, of a plan’s definition of medical necessity. "We do not have approval responsibility or authority for definitions of medical necessity," declared Mitchell. "The definition of medical necessity is written into the enrollee contract. We do not have any approval rights over enrollee documents."

Medical necessity is clearly concerned with quality of care issues, but according to Mitchell, "Quality of care is regulated within the context of health plans, always in the context of what is and is not a covered benefit. By statute, that is the controlling context."

Act 68 and its regulations appear to offer only the complaint and grievance process to redress disputes with managed care plans’ definitions of medical necessity since, according to Mitchell, "There is no statewide standard for medical necessity that covers managed care plans or other health plans in Pennsylvania."

DOH always has the option of adding or amending regulations, a process that can take up to two years, or between four and six months under perfect circumstances, added Mitchell.

Sen. Tim Murphy (R-Allegheny) said that, since Act 68 took effect, his office receives only 10 percent of the calls it previously did from providers complaining about payment delays and denials.

Murphy, who wrote the patient protection language in SB 100 that was eventually incorporated into Act 68, said he wanted to see a clearer definition of medical necessity put into the law. "The reason we didn’t put it into the law was that we wanted to allow some flexibility over time to modify definitions as needed with new breakthroughs in technology and science."

As for legislative intent, Murphy noted, "The bill asks for plans to have some definition, and we had thought at least the regulations are going to put some parameters in that should be addressed."

"If there are no standards to determine the adequacy of plans’ definitions, that is a gaping hole and that’s a reason for great concern because that’s part of the foundation of the concerns that people have about managed care," said Murphy, who questioned how a managed care plan is supposed to write a definition of medical necessity without a standard from the regulations.

"We need to review what definitions plans are putting forward and, if we feel they’re inadequate, we can push for some legislative action, perhaps first in hearings. If that fails, the next step we have to take, I think, is pass legislation that requires better definitions of medical necessity," Murphy said.