June 2002 Bulletin

More states pass prompt payment laws

By Jay Fisher, JD

During the 2001 legislative session, eight states (Alaska, Arkansas, Iowa, Oregon, Rhode Island South Dakota, Utah and West Virginia) passed legislation requiring insurers to pay physician claims promptly. Forty-six states have now passed prompt payment laws.

These laws have made a positive impact in reducing physician cash flow problems.

More significantly, perhaps, in 2001 seven states passed legislation amending existing prompt payment legislation to try and increase compliance by insurers who have been employing technicalities to delay payment. Already in 2002 four states (Indiana, Kentucky, Maine and Mississippi) have amended their prompt payment laws.

When states reconsider their prompt pay laws they usually focus on two issues: 1) how is a clean claim defined? 2) What can be done to increase the punishments imposed [to insurers] for violations of the act?

Under most prompt pay laws only "clean" claims must be paid within the statutory time limit. Insurers evade the time limits by insisting that claims need supplemental information or there is incorrect information on submitted claims.

Twenty-one states have a statutory definition of what constitutes a "clean claim." Most of these definitions are not very helpful in preventing insurers from contesting that a claim is not clean. The most common definition of a clean claim is "a claim with no defects or impropriety, including a lack of any required substantiating documentation, or particular circumstance requiring special treatment." While this seems reasonable, one needs to consider that it is the payer who controls all the factors necessary for a claim to be clean, such as what is a defect or what requires special treatment.

States are trying to devise creative solutions to this difficult problem of how to define a clean claim. Texas passed a bill (that was later vetoed) requiring the Department of Insurance to enact a regulation stating that if specific fields on the CMS 1500 form were filled out then a claim is considered clean.

The amended Alabama law passed last year says that insurers cannot require more information than is on the state-created standard health insurance claim form. Rhode Island tried a different tactic in their law, requiring each health plan to develop a written standard for what constitutes a completed claim and to distribute the standard to all physicians.

This year, Maine tried to combine these tactics by passing legislation that defines a clean claim as one submitted on "the insurer’s standard claim form using the most current published procedural codes with all the required fields completed with correct and complete information in accordance with the insurer’s published claims filing requirements."

Hopefully, these efforts to box insurers into paying claims promptly will stem the difficulties physicians have in getting paid for their services.

Jay Fisher, JD, is a legislative analyst in the AAOS health policy department.

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