The 2009 Managed Care Reform Act: Does It Go Far Enough?

In this era where health care providers routinely wind up with the short stick in their dealings with health insurance plans, the passage of the 2009 Managed Care Reform Act¹ offers welcome relief for New York’s health care provider community. The new law, enacted in July 2009, has broad application for licensed health care facilities, providers and consumers,² offering reimbursement protections, greater transparency in contracting and credentialing, and improved guidelines for the payment of health care claims. While the new law swings the pendulum in favor of health care providers, it may not go far enough to ensure that providers receive timely payment for the services they render.

The act’s passage was the product of lengthy negotiations between and among New York’s key players in the managed care arena during the final days of the 2009 state legislative session.³ The act is the latest and most expansive of a series of New York State managed care reform efforts that include the previously enacted External Appeal Law,⁴ the Prior Authorization Law,⁵ the Cooling-off Law,⁶ and the Prompt Pay Law.⁷

Plans to Pay More Promptly

The act addresses one of the foremost objectives of health care providers—obtaining timely reimbursement from health plans for health care services rendered. The act shortens the 45-day claim payment time frame under New York’s current Prompt Pay Law.⁸ While paper and faxed bills will remain subject to the current 45-day payment time frame, effective Jan. 1, 2010, health plans will be required to pay all claims electronically submitted within 30 days of submission.

With regard to disputed claims, a health plan will be required to pay any undisputed portion within the statutory time frame, and, within 30 days of receipt, notify the provider if it believes that it is not liable to make the balance of the payment. The health plan will need to state the specific reasons why it believes that it is not obligated to pay the balance. In the alternative, a health plan can request additional information necessary to make payment within 30 days. This accelerated reimbursement procedure is intended to promote increased efficiency in a system plagued by avoidable delay. In reality, however, most plans currently pay electronically submitted claims within 30 days so providers likely will not realize any significant benefit as a result of this aspect of the act.

The act addresses one of the foremost objectives of health care providers—obtaining timely reimbursement from health plans for health care services rendered.

The Managed Care Reform Act also addresses the costly delays resulting from health plan attempts to avoid liability by contending that another plan is primarily responsible for payment. Pursuant to the new law, a health plan is now prohibited from denying a health claim on the basis that it is coordinating benefits with another potentially liable payor unless the plan has a "reasonable basis" to believe that another payor is primarily responsible for the coverage.

The plan also may not delay adjudication of a claim because it is waiting for a patient questionnaire to be returned. To aid in making its payment determination, a health plan may request additional or updated information from the patient-claimant. However, if this information is not returned from the patient timely, the health plan must nonetheless adjudicate the claim in the time frame mandated under the statute.

While the payment time frames in the new law are helpful, the new law does not address a long-standing concern that Prompt Pay Law penalties⁹ are inadequate to deter non-compliance by wealthy health plans. In fact, in 2008, only $279,700 in prompt pay fines were levied against various health plans.¹⁰ Thus, although the new law requires payment on electronically submitted claims 15 days faster, the penalties for violation may not be a significant enough deterrent for health plan non-compliance.

Timing of Claim Submissions

The act now explicitly prescribes that providers have a 120-day window following the date of service within which to submit a claim to a health plan for payment. This provision offers a significant improvement to the current state of affairs where health plans, by contract, typically limit reimbursement to claims submitted within 60 or 90 days of the date of service.¹¹ This time frame can be modified upon the parties’ mutual agreement.

Additionally, if a provider can demonstrate that a claim was submitted more than 120 days after the service date as a result of an "unusual occurrence," the health plan will be required to pay a minimum of 75 percent of the provider’s claim to the extent that the provider has a "pattern or practice of timely" submission. Participating providers and health plans are free to negotiate a lower reduction in payment, or may eliminate the "penalty" completely.

Unfortunately, the new law neglects to define or provide guidelines as to what constitutes an "unusual occurrence" or a demonstration of a "pattern or practice" of past timely submission, leaving the potential for continued abuses by health plans in place.

Retrospective Audits

For years, contracts between health plans and hospitals have been drafted to favor the health plans. Where a hospital has little market leverage, that hospital may have fallen prey to a particular imbalance concerning the respective rights of the parties to adjust previously adjudicated claims. Generally, a managed care contract bars a hospital from seeking payment adjustment more than a few months after a claim was paid. Conversely, contracts rarely contain any limits on the ability of a health plan to recoup moneys from the hospitals. During the past decade, health plan retrospective audits seeking to recoup moneys from hospitals more than four or five years back have not been uncommon.

Under the act, as of Jan. 1, 2010, a health plan will have only two years to seek recoupment or challenge a provider’s claims, except in cases of fraud and abuse or duplicate payments.

In 2007, New York enacted legislation to limit the time frame within which health plans could recoup such overpayments from physicians.¹² The act extends protection to hospitals and other health care providers¹³ including chiropractors, dentists, physician assistants, psychologists, social workers and physical therapists.

In addition to the new cut-off period, health plans also must provide health care providers with 30 days’ advanced written notice of any demand for repayment, stating its reasons for the demand. Further, health plans must allow providers the opportunity to challenge an overpayment recoupment and must establish written policies and procedures to guide such challenges.

While the act will provide significant protection for health care providers, a two-year window may still be too long. Providers are free, however, to establish a tighter window for retrospective recoupment in their managed care contracts. Savvy providers will attempt to limit this window by contract to less than the two-year floor established under the act.

Provisional Credentialing

In the past, physician practices have been forced to wait for inordinate periods of time for a health plan to credential¹⁴ a new member of the medical practice. Under the act, effective Oct. 1, 2009, if the health plan fails to act on a credentialing application within 90 days of the application’s submission, the applicant physician will be deemed "provisionally credentialed" after joining a group where all of the practitioners are participating with a plan and where the physician is newly practicing or has relocated to New York from another state.¹⁵

Although this provision is intended to enable physicians to more quickly receive payment for the health care services, this section of the act has significant shortcomings. First, the provisional credentialing only will apply where every other physician member of the practice is participating with the health plan. This situation is not always the case. The new law also will not benefit situations where an experienced physician moves across town or across the state to join another practice.

Right to Directly Appeal

Since the enactment of New York’s External Appeal Law in 1998,¹⁶ hospitals have been hindered by the narrow scope of the appeal rights afforded. Under the 1998 External Appeal Law, a hospital did not have a direct right to challenge a health plan’s concurrent adverse determination.¹⁷ Rather, the original External Appeal Law merely granted a hospital the right to directly challenge a retrospective adverse determination, meaning a determination made long after a patient has been discharged. Under the act, hospitals will be able to dispute health plan concurrent adverse determinations in their own right. This change of law will have a significant and favorable impact on hospitals.

Payment Reductions

The act will protect hospitals and physicians from health plan efforts to avoid full reimbursement for services because one of the providers involved in the care of the patient is not participating with the health plan. Now, where an insurance policy provides coverage for the services of a participating hospital, the health plan is restricted from discounting payments to the hospital solely on the ground that the admitting physician or another physician rendering care is not participating with the health plan.¹⁸ Similarly, a health plan cannot deny payment to a participating physician if the treatment is performed at a non-participating hospital. The new law signifies progress towards offsetting the imbalance for physicians and hospitals confronted with such reimbursement obstacles.

Notice on Reimbursement

As of Jan. 1, 2010, health plans no longer will be able to unilaterally institute silent changes to the reimbursement structure of managed care contracts with physicians or other licensed health care professionals.¹⁹ Under the act, a health care plan is prohibited from making an adverse reimbursement change to a managed care contract without first giving the physician at least 90 days written notice of the change. The physician will then have the option of terminating the contract. For purposes of the new law, "adverse reimbursement change" means a proposed change that could reasonably be expected to have a material adverse impact on the aggregate level of payment to the physician or other health care professional under the contract.

Pursuant to the new law, a health plan is now prohibited from denying a health claim on the basis that it is coordinating benefits with another potentially liable payor unless the plan has a ‘reasonable basis’ to believe that another payor is primarily responsible for the coverage.

This particular addition to the law is of little benefit. Even if a physician receives notice that the health plan seeks to cut payments after 90 days, the physician may not be in a position to terminate the contract if the particular health plan accounts for a significant volume of the practice.

Conclusion

The new Managed Care Reform Act comes at a time when the nation anticipates a possible overhaul of the entire health care system. It will be interesting to see the interplay between new federal health reform legislation and our new and improved state managed care laws. Clearly, the Managed Care Reform Act is New York’s most expansive piece of managed care reform legislation to date, and it offers an encouraging movement toward curbing injurious health plan practices. However, like many reform efforts, the new legislation is not a complete fix of the problems in the current managed care system. Over time, additional regulatory efforts will be necessary to further level the skewed playing field between the health care providers and the health plans in this state.

1. 2009 N.Y. Laws ch. 237.
2. While the new law includes important changes impacting health care consumers, this article focuses on the law’s impact upon health care providers.
3. Key participants included the Healthcare Association of New York State (HANYS), the New York State Insurance Department, the New York State Department of Health, the Medical Society of the State of New York, the Conference of Blue Cross & Blue Shield Plans, the Greater New York Hospital Association, the New York Health Plan Association and New Yorkers for Accessible Health Coverage.
4. The External Appeal Law establishes the right of patients, and in more limited cases, providers, to obtain review by independent medical experts when a health plan denies coverage for services it deems not to be medically necessary. N.Y. Ins. Law §4910(b); N.Y. Pub. Health Law §4910 (McKinney 2009).
5. The Prior Authorization Law, requires health plans to pay for health care services for which the provider received a preauthorization. N.Y. Ins. Law §3238 (McKinney 2009).
6. The Cooling-off Law requires hospitals and health plans to continue to cover all services and abide by all contract terms for a set period following the termination of a managed care contract in order to prevent consumers from being unnecessarily burdened each time a hospital and health plan enter into contract negotiations. N.Y. Ins. Law §§3217-b(h), 4325 (h); N.Y. Pub. Health Law §4406-c(5-c) (McKinney 2009).
7. The Prompt Pay Law sets forth standards for the prompt, fair and equitable settlement of health care claims. N.Y. Ins. Law §3224-a(a) (McKinney 2009).
8. Id.
9. For each violation of the Prompt Pay Law, a health plan is obligated to pay the amount of the claim plus interest from the time the claim or payment was due, except that interest is not due in an amount of less than two dollars. N.Y. Ins. Law §3224-a(c) (McKinney 2009).
10. N.Y.St. Ins. Dep’t, Ann. Rep. of the Superintendent 150, at 136 (2008), available at http://www.ins.state.ny.us.
11. The newly extended time period applies to dates of service on or after April 1, 2010. N.Y. Ins. Law §§3224-a(g), (h) (McKinney 2009).
12. N.Y. Ins. Law §3224-b(b) (McKinney 2009).
13. The act defines "health care provider" as an entity, facility or professional licensed, certified or registered pursuant to specified sections of the Public Health Law, the Mental Hygiene Law and Title VIII of the Education Law.
14. Credentialing is the process of verifying a physician’s experience, certification, license, education, training, capabilities, and character, and defines the scope of their practice. Until a physician has been credentialed by a health plan, the health plan will not reimburse such provider.
15. N.Y. Ins. Law §4803(a); N.Y. Pub. Health Law §4406-d(b) (McKinney 2009).
16. The External Appeal Law provides the right to obtain a review by independent medical experts when a health plan denies coverage for services it deems not medically necessary. N.Y. Ins. Law §4910(b); N.Y. Pub. Health Law §4910 (McKinney 2009).
17. The meaning of "concurrent adverse determination" under the existing law has been broadly interpreted to include any decision by the health plan stemming from deliberations that commenced while the patient was hospitalized, even if the health plan did not notify the hospital that a particular course of treatment would not be covered until the patient’s care had been completed and the patient had been discharged.
18. N.Y. Ins. Law §§3216(i), 3221(k), 4303(ff); N.Y. Pub. Health Law §4406 (McKinney 2009).
19. N.Y. Ins. Law §§3217-b, 4325; N.Y. Pub. Health Law §4406-c (McKinney 2009).

Claudia A. Hinrichsen is a partner of Abrams, Fensterman, Fensterman, Eisman, Greenberg, Formato & Einiger, and can be reached at chinrichsen@abramslaw.com.

Reprinted with permission from the November 10, 2009 edition of the NEW YORK LAW JOURNAL © 2009. ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382 or reprints@alm.com. # 070-11-09-30