A Matter of Law: Prompt Pay Laws

by Legal and Regulatory Affairs Staff

Have you ever submitted your bills to a private insurance company and waited months to find out whether the insurer would pay your claim? If so, depending on your state’s laws, you may be entitled to interest from the insurer. The company also may risk being fined by the state’s Department of Insurance.

All states except South Carolina have rules requiring insurers to pay or deny claims within a certain time frame, usually 30, 45, or 60 days. Known as “prompt pay” laws, the state rules resulting from these laws impose a series of requirements and penalties intended to ensure that health care professionals are paid in a timely fashion. Prompt pay laws often require insurers to pay electronic claims faster than paper claims.

A typical prompt pay law applies to all “clean claims.” A clean claim means that the provider used the insurer’s paper claim form (usually known as a CMS-1500 form, formally the HCFA-1500 form) or followed the specified electronic billing format, and has completed all the required fields with enough information to allow the insurer to process the claim. Your insurer is required to tell you what information must be included on these forms, though in some states, the Department of Insurance has determined this information.

In some cases, even when a clean claim is submitted, insurers cannot determine whether to pay or deny it until they receive additional information, such as whether the client has other insurance. (Insurers maintain that enrollees often fail to furnish that information when they sign on for insurance through their employer.) Prompt pay laws generally make exceptions for such situations, but require that the insurer ask for the information within a set time frame and process the claim within the required prompt pay period once the information has been provided.

In most states, insurers that fail to process claims within the state’s prompt pay time period are required to pay interest to the provider, sometimes as high as 18 percent annually. In addition, insurers may be subject to fines if they routinely fail to pay claims in a timely manner and/or fail to pay interest. For example, in 2001, California fined an insurer close to $3,000,000 for violating the state’s prompt pay laws and failing to pay interest fees. In 2002, Texas required 47 insurers to pay more than $36 million to providers and an additional $15 million in fines. More recently, in October 2005, the Georgia Insurance Commissioner notified an insurer that it could face $2.4 million in fines for failing to adhere to the state’s 15-day prompt payment requirements.

What should you do if claims seem to be taking a long time to get processed? First, check your state’s prompt pay law requirements. This information is available on the website for your state’s Department of Insurance. To find your state’s site, go to the National Association of Insurance Commissioners’ (NAIC) website, and click on the link titled, “NAIC States and Jurisdictions.” If available, you might try using the “Search” function at the relevant site to help you locate information about the state’s “prompt payment law.” If you have trouble finding the prompt pay deadlines on the website, call the Department of Insurance directly using the phone number listed on the site.

Once you have confirmed that your insurer is outside the prompt pay deadlines, you should take the following steps:

1. Complain to the insurer. Include with your complaint the state’s prompt pay time frame, the date you submitted your claim, and, if possible, proof of the date the claim was submitted or received (for example, certified mail receipt or electronic claim notification of receipt). In cases where the insurer asserts that it never received the claim, include a copy of the original claim.

2. If your complaint to the insurer does not resolve the problem, then complain to your state’s Department of Insurance. Complaint forms typically can be found on the state insurance department website, along with the department’s address and phone number. Be sure that you have documented your contacts with the insurer on this issue, including the name of any person you spoke with, the date of the conversation, and what was discussed.

Though this clearly involves a lot of work to get paid properly, it is important that insurers not be permitted to routinely delay payment. The best way to ensure that insurers adhere to prompt pay laws is by taking action when you realize there is a problem. Please forward any complaint letters that you send to your Department of Insurance to the APA Practice Directorate’s Legal and Regulatory Affairs Department (or by mail to 750 First St., NE, Washington, DC, 20002) so that we may monitor insurers’ activity in this area.

An important exception to prompt payment laws is that they generally do not apply to plans that are “self-insured.” Self-insured plans are funded by employers or other large groups and use insurance companies merely to process claims. Because these plans use their own funds to pay claims, instead of paying premiums to insurers, they are not deemed to be in the business of insurance, and cannot be regulated by state insurance departments. Self-insured plans are governed by federal laws, which have yet to impose prompt pay requirements.

It often can be difficult for a provider to determine whether a client is covered under a regular insurance plan or under a self-insured plan. In Pennsylvania, for example, a number of psychologists recently submitted claims to the Pennsylvania Insurance Commissioner that exceeded the prompt pay time limits. Unfortunately, upon investigation, the psychologists were informed that virtually all the claims related to self-insured plans that were not subject to Pennsylvania’s prompt pay requirements. Further, be aware that prompt pay laws do not apply to government programs, such as Medicare and Medicaid.

This article is the seventh in a series, “A Matter of Law,” about the practical effect of various laws and regulations on practicing psychologists.

PLEASE NOTE: Legal issues are complex and highly fact-specific and require legal expertise that cannot be provided by any single article. In addition, laws change over time. The information in this article should not be used as a substitute for obtaining personal legal advice and consultation prior to making decisions regarding individual circumstances.