By Barry H. Boise, Esq.& Barak A. Bassman, Esq.
In an attempt to combat chronic late payments and under payments by HMOs to health care providers, the Pennsylvania legislature included a “prompt pay” provision in the Quality Health Care Accountability and Protection Act. On its face, Pennsylvania’s prompt-pay law appears quite promising: a “licensed insurer or a managed care plan shall pay a clean claim submitted by a heath care provider within 45 days” or interest accrues on the unpaid balance at the rate of 10 percent per year.
In practice, however, the prompt-pay law has not provided much help for Pennsylvania physicians or deterred recalcitrant payers. The prompt-pay law has two main problems: physicians may not have a private right of action under it and, more importantly, payers often can avoid the consequences of prompt-pay violations by simply disputing providers’ bills or documentation of claims.
The traditional common-law actions for breach of contract, unjust enrichment and pre-judgment interest are the best alternatives for providers seeking payment. The Pennsylvania courts have recently embraced the idea that providers, even if non-participating, can bring suit against insurers for unpaid bills under traditional principles of contract law.
The first problem with Pennsylvania’s prompt-pay law is enforcement. It is unclear that physicians can even sue to enforce prompt-pay regulations. A state and a federal court have split on this issue.
In Solomon v. United States HealthCare Systems of Pennsylvania, Inc. the Pennsylvania Superior Court affirmed the trial court’s dismissal of a physician’s claims for prompt-pay violations. Specifically, the court held that Pennsylvania’s prompt-pay law does not create a private right of action. While the court found that plaintiff was a member of the class for whose benefit the statute was enacted, it held that there was no private right of action because the Legislature intended that the Insurance Commissioner alone should enforce it. The court was particularly persuaded by the fact that “the regulations provide an administrative procedure for a health care provider to file a complaint with the Insurance Department.”
However, the U.S. District Court for the Eastern District of Pennsylvania recently declined to follow Solomon. In Grider v. Keystone Health Pan Central, a plaintiff physician filed a putative class action against an HMO for, among other things, violation of Pennsylvania’s prompt-pay law. In denying defendant’s motion to dismiss, the court held that Pennsylvania’s law does provide a private cause of action. The court reasoned that the Pennsylvania Insurance Department lacks authority to order insurers to pay providers on unpaid claims, and, because it would be “absurd” to enact the prompt -pay law without any enforcement mechanism, there must be a private right of action.
If a provider cannot file suit to enforce the prompt-pay law, then its only recourse may be to complain to insurance regulators. A potential downside to pursuing an administrative remedy is the lack of control over the course of proceedings. An unpaid provider is interested, primarily, in being paid. A state regulator may want to investigate the insurer’s practices regarding a wide range of providers, which could significantly delay a smaller, individual settlement between a particular provider and the insurer.
Private enforcement of prompt-pay laws has not always benefited physicians. Most attempts at private enforcement of prompt-pay laws throughout the country have taken the form of sweeping class actions against insurers, in which prompt-pay claims are sometimes joined with a myriad of other causes of action, such as alleged violations of the federal Racketeer Influenced Corrupt Organizations Act.
The use of class action litigation to enforce prompt-pay laws carries two problems. First, extensive procedural disputes over the propriety of class certification are likely. The class certification battles may be quite time-consuming, delaying payment even further.
Second, the few settlements that have been entered in this field do not necessarily deliver significant compensation for providers. For example, in Aetna’s settlement of the In re Managed Care Litigation pending in Florida, Aetna agreed to create a settlement fund of $100 million to be distributed to class members. While a substantial amount of money in the aggregate, it will be used to settle all claims from all physicians, active or retired, in the United States since 1990. The average physician is estimated to recover only about $150 in exchange for releasing all claims against Aetna. Any physician with a substantial accounts receivable loses out in the settlement.
Even if a physician can, and does, file a private, individual action to enforce prompt-pay rights, it is far from clear that the prompt-pay law will provide meaningful relief. HMOs can easily exploit a very large loophole in the prompt-pay law: so long as there is a dispute as to the amount of money owed on a claim, the payer has no obligation to pay promptly and interest does not accrue.
The Pennsylvania prompt-pay law only applies to “clean claims.” A “clean claim” is defined as any claim without a “defect or impropriety.” Who gets to decide whether a claim has a defect or impropriety? Payers decide, according to Pennsylvania’s insurance regulations. A “clean claim” is only a claim that has full documentation and where the payer does not contest the appropriateness of the bill.
An HMO can avoid its prompt pay obligations by using the same delaying tactics that have so frustrated physicians for years: disputing levels of care, “downcoding” CPT codes, splitting hairs over paperwork and so on. In the end, the prompt-pay law delivered results only if and when payers choose to play fair with physicians.
Alternative Collection Remedies for Providers
So how can a physician stand up for his or her right to be paid? Two practical alternatives for obtaining payment are available. First, if the physician has a contract with the payer, the provider should sue for breach of contract.
Second, in the absence of a contract, the provider may sue for recovery under a theory of unjust enrichment. Here, the physician can argue that by performing a service for an insured, it has rendered a benefit to the payer, i.e., the physician has rendered covered services. If unpaid, the payer unfairly reaps a windfall, because it has collected premiums precisely to pay physicians for providing services. The payer is therefore obliged to pay the provider reasonable value for this benefit.
In the past year, the state appellate court in Pennsylvania has embraced unjust enrichment recovery in the non-par setting. The Pennsylvania Superior Court in Temple Univ. Hosp., Inc. v. HealthCare Management Alternatives, Inc. held that plaintiff hospital had the right to recover the fair value of its services provided to defendant Medicaid HMO’s members, even though the hospital did not have a participating provider agreement.
A provider suing under unjust enrichment or breach-of-contract theories also may be entitled to interest on the amount owed. In general, in contract cases, plaintiff is entitled to pre-judgment interest on liquidated debts from the date of default until payment is made.
Barry H. Boise, Esq., is a Partner in the Health Care Services Group at Pepper Hamilton LLP in Philadelphia, Pa. Barak A. Bassman, Esq., is an Associate in the Health Care Services Group at Pepper Hamilton LLP in Philadelphia, Pa.