Government News
With Payment Laws Failing, Physicians Turn to Courts
Psychiatric News
Volume 36 Number 20 page 6-26

The check rarely seems to be in the mail. Almost from the beginning of the so-called managed care revolution, doctors have reported problems about getting paid from managed health care companies.

At first, the solution appeared simple: pass laws requiring "prompt payment" upon submission of appropriate documentation. Forty-seven state legislatures enacted laws that require health plans to pay claims from doctors and other medical personnel in a timely fashion.

But that legislative fix rarely worked. In fact, the January/February 2001 issue of APA’s Psychiatric Practice and Managed Care noted that "the frustration and hassles physicians endure [concerning payment] are becoming more prevalent and more complex." That sentiment was echoed in a 2001 AMA poll of state medical societies, which reported that the number one private-sector concern of their members was prompt payment.

Karen Sanders, manager of APA’s Managed Care Help Line, asked, "What is a psychiatrist to think after submitting clean claims time after time that are repeatedly lost, never entered into the company’s system, and never acknowledged? These problems occur even when the claim is sent to the correct address and is accompanied by the appropriate papers."

Rachel Morgan, senior policy analyst at the Health Policy Tracking Service at the National Conference of State Legislatures (NCSL), said that in the 2001 legislative session several state legislatures tried to "fine-tune" existing legislation to deal with the continuing payment problems.

"States began tightening payment deadlines and tinkering with fines and interest payments," she told Psychiatric News.

South Dakota and Indiana, for example, passed legislation in 2001 mandating that health plans have a shorter deadline to process claims submitted electronically than by other means. Arkansas enacted legislation requiring that health plans notify physicians within 15 working days if a claim has been accepted or denied and also requiring a health carrier to pay a penalty of 12 percent each year for late payment of claims.

Legislators in Nevada amended an existing law to increase the interest penalty on late payments. Indiana established a schedule by which the insurance commissioner can assess fines. The maximum permitted fine is $200,000, which can be levied when a health plan has paid less than 60 percent of all clean claims.

In contrast, Texas Governor Rick Perry (R) vetoed legislation supported by physicians that included a definition of "clean claim" and offered a penalty schedule for delayed payment.

Charles Lee Bowden, M.D., president of the Texas Society of Psychiatric Physicians, said, "Texas physicians were extremely distressed at that inexplicable action. The legislation was supported by both Republicans and Democrats."

In Florida, legislation defining clean claims died in committee in both chambers.


Many fed-up physicians have decided they must turn to the courts for a solution to the long-standing payment problems. Take Georgia as an example. John Berglund, executive director of Georgia Psychiatric Physicians Association, said, "We have a strong law requiring payment within 15 days of receipt of a clean claim and an aggressive insurance commissioner who fined companies hundreds of thousands of dollars for late payments. But problems persist and another kind of action may be necessary."

That action is taking the form of support for a class-action lawsuit that charges major health care companies with violations of the federal Racketeer Influenced and Corrupt Organizations (RICO) Act. The effort first began in late 1999, when Mississippi lawyer Richard Scruggs, famed for his 1998 billion-dollar win against tobacco companies, filed class-action suits in Hattiesburg, Miss. The suit charged CIGNA Corporation, Foundation Health Systems Inc., Humana Inc., PacifiCare, and the Prudential Insurance Company of America with RICO violations.

Those cases and more than 20 others from across the country ultimately were certified as a consolidated class-action suit in the U.S. District Court for the Southern District of Florida. Currently, the suit is split into two tracks: physician and consumer. Scruggs remains the lead counsel for the consumer track, and Archie Lamb is lead counsel for the physician track. Among the defendants are Humana, Aetna, Cigna, Coventry Health Care, Pacificare Health Systems, and United Health Group. Plaintiffs include medical associations in California, Florida, Georgia, and Texas.

Charges made in the lawsuit Humana Inc., Managed Care Litigation include allegations that the companies, "covertly manipulate, maneuver, and exploit longstanding accepted industry-wide practices for financial gain. . . .[that] capitation payment schedules are founded on actuarially unsound principles and are manipulated by defendants to increase their profits at the expense of the physicians who provide medical services. . .[companies] systematically deny and delay payments due physicians and profit from the moneys wrongfully retained."

Although no state psychiatric association has become a plaintiff to the suit, officers in the relevant states support the activities of their medical association colleagues. Bowden said, "Physicians submit claims promptly and make great efforts to respond to what appear to be unnecessarily burdensome requirements and still are not paid in a timely fashion. The claims outlined in the suit are strong, and the charge of racketeering is appropriate."

U.S. District Judge Frederico A. Moreno ruled on May 23 that discovery in the case should go forward and be completed early in 2002. That discovery was temporarily halted until arbitration issues in a related case in another court could be determined.

Lamb predicts that the discovery phase will begin in spring 2002. He told Psychiatric News, "The greatest defects [in legislation] now are the lack of an adequate enforcement mechanism and sufficient financial penalties. Companies should have to pay a financial price for cheating physicians out of what they are owed." ▪

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