Commissioner’s Bulletin # B-0008-05
February 24, 2005
TO: ALL INSURERS LICENSED TO WRITE ACCIDENT AND HEALTH INSURANCE AND HEALTH MAINTENANCE ORGANIZATIONS
RE: TIMELY PAYMENT OF PROMPT PAYMENT PENALTIES
Senate Bill 418, enacted by the 78 th Legislature, requires certain insurance carriers and health maintenance organizations (HMOs) to pay clean claims in a timely manner. That legislation amended Texas Insurance Code Article 3.70-3C regarding preferred provider benefit plans and Chapter 843 (the "Texas HMO Act") concerning HMOs to provide comprehensive changes to the procedures and requirements governing the processing and payment of clean claims submitted by certain physicians and providers. Payable clean claims must be paid within the statutory claims payment period, which is not later than: 1) the 45 th day after receipt of a clean claim in a nonelectronic format; 2) the 30 th day after receipt of a clean claim in an electronic format; or 3) the 21 st day after an electronically submitted pharmacy claim is affirmatively adjudicated. The above mentioned statutory provisions, as well as 28 Texas Administrative Code §21.2815, address the following two scenarios where the statutory claims payment period is not met: 1) the carrier did not pay a payable claim at all during the payment period, so the payment is considered late; or 2) the carrier only paid a portion of a payable claim on time, so the payment is considered underpaid.
It has recently come to the attention of the Texas Department of Insurance (TDI) that some carriers that owe prompt payment penalties are failing to pay penalty amounts at the time late claims or balances of underpaid claims are paid. The purpose of this bulletin is to notify carriers that TDI expects that all carriers subject to the prompt payment requirements will pay penalties concurrently with late claims or balances of underpaid claims.
Insurance Code Article 3.70-3C §3I and §843.342 require a carrier, when the applicable statutory claims payment period is not met, to: "…pay the [preferred provider/physician or provider] making the claim the contracted rate owed on the claim plus a penalty…" Similarly, 28 TAC §21.2815 states that a carrier that does not pay a clean claim within the applicable statutory claims payment period must "…pay to the preferred provider, in addition to the contracted amount owed, a penalty…" The same Administrative Code section and Insurance Code sections instruct that a carrier that pays a penalty shall clearly indicate on the explanation of payment the amount of the contracted rate paid, the amount of the submitted billed charges and the amount paid as a penalty. These provisions require payment of the penalty amount at the time the claim is paid. The concurrent payment of penalties and claim amounts promotes an effective system in which links between specific claims and corresponding penalties are easily traced and clearly defined.
The statutory and regulatory scheme is designed to provide for the prompt and correct payment of claims and provides a mechanism for the payment of penalties if the carrier pays claims late or incorrectly. This scheme anticipates a self-sustaining system that ensures the prompt payment of claims without a frequent need for TDI intervention. When penalties are not paid upon payment of claims or unpaid portions of claims, the efficiency of this self-sustaining mechanism may be compromised as providers may be forced to look to TDI to address the non-payment of penalties. Carriers are expected to preserve the system by paying penalty amounts at the time late claims or balances of underpaid claims are paid. If carriers do not act in compliance with the goals of the system and the intent of the regulatory and statutory language addressing prompt payment penalties, it may be appropriate for TDI to consider enforcement action and administrative penalties as a deterrent.
TDI expects carriers to ensure that they are complying with and promoting the purpose of Texas prompt payment law and rules by paying penalty amounts at the time late claims or balances of underpaid claims are paid. If you have any questions on behalf of preferred provider benefit plans concerning timely payment of prompt payment penalties, please contact Audrey Selden, Senior Associate Commissioner of Consumer Protection via telephone at 512-322-4309 or via e-mail at Audrey.Selden@tdi.state.tx.us. If you have any questions on behalf of health maintenance organizations concerning timely payment of prompt payment penalties, please contact Ryan Tredway, Director of Project Development for Life, Health & Licensing, via telephone at 512-305-6746 or via e-mail at Ryan.Tredway@tdi.state.tx.us.
Sincerely,
Jose Montemayor
Commissioner of Insurance