State Of Ohio DEPARTMENT OF INSURANCE 2100 Stella Court, Columbus, Ohio 43215 (614) 644-2658        www.ohioinsurance.gov	Bob Taft, Governor J. Lee Covington II, Director

Testimony of
Holly Saelens, Assistant Director
The Ohio Department of Insurance
Before
The Ohio House Insurance Committee
On Substitute Senate Bill 4
June 5, 2001

 

Mr. Chairman and members of the committee,
My name is Holly Saelens and I am the Assistant Director for Policy and Legislation for the Ohio Department of Insurance.

The purpose of my testimony today is twofold: 1) to share with you the findings of the recent examinations of the Ohio health insurers regarding compliance with the current prompt payment law. 2) To convey the Department's support for Senate Bill 4.

The current law on prompt payment was adopted in Senate Bill 169 in June 1988. This law charged the Ohio Department of Insurance with ensuring compliance by Ohio insurers. Based on concerns raised by the provider community and complaints received from consumers and providers, the Department last year opened examinations on 34 Ohio health insurers, which represents approximately 80% of the health care market in Ohio.

What the Department discovered through these examinations was very insightful not only into the claims practices of insurers but those of providers. This information provides a rare insight into the issues and challenges faced by all parties involved with processing of claims.

Examinations
The Department's effort to monitor compliance with the prompt payment law began in January 2000. Again these examinations were on 34 insurers, including health insuring corporations (HICs/HMOs) and traditional insurance companies ("companies"). Collectively, these insurers write health insurance premiums in Ohio equaling approximately $8.6 billion. In total, the Department analyzed more than 10.8 million claims and examined 18 companies on site. These on-site exams of companies represent 60% of the market and included companies with the largest market share in Ohio. The current law and our examinations did not apply to self-insured companies (ERISA), Medicare, Medicaid, and capitated payment arrangements.

Outcomes
Based on these on-site examinations, we identified a number of companies for potential enforcement actions as a result of establishing a pattern or practice of not complying with the prompt payment statute. The Department's enforcement authority is only triggered when an insurer has the documentation it reasonably requires to pay or deny a claim and does not do so. Seven of these companies have agreed to consent agreements that include a monetary penalty and a corrective action plan.

Observations
The Department's assessment of the aggregate data collected for our examinations include:

• 84% of claims examined were paid or denied in compliance with the prompt payment law.
• 95% of claims were paid or denied within 45 days of receipt.
• 96% of claims were paid or denied within 60 days of receipt.

Other observations include:

• 23 companies had some contracts that specified a period of time other than 24 days. Most contracts were 30 or 45 days.
• With the exception of 3 companies that could not verify compliance, all companies examined on site were in compliance with current regulations requiring requests for information within 21 days. The companies who could not verify compliance are being required to execute a corrective action plan.
• The reasons for "pending a claim" (reasons why a claim was being held and not considered complete) varied greatly among companies. In fact, some companies will assign multiple pend codes to a single claim. Our data indicated the most common reasons for claims being pended include:
• Internal review (medical, pricing, all other) (22%).
• Coordination of Benefits (15%).
  
• Information needed from external source, such as an employer (15%).
• Claims pended for the next weekly or bi-weekly payment cycle (8%).
• Information requested from submitting provider (7%).

The current prompt payment law focuses on the timeliness of processing of claims. From our interaction with both providers and insurers, prompt payment has grown to encompass more than just timeliness. One lesson learned from the Department's examination is that compliance with prompt payment is unique to each company due to several distinct but varied factors. To ensure further progress is made in the payment of claims, our examinations indicate that providers and health insurers must reach an understanding on issues such as coding, bundling of services, and fee schedules.

Finally, during the course of the examinations, the Department offered companies an opportunity to describe the top three reasons within provider's control that cause claims to be held up or denied. During informal contacts with providers in the past year, the Department asked providers the same question about insurers. Attached to my testimony is a summary of those issues. A comparison of the two lists indicates that insurers and providers often identify the same issue as a problem but from different perspectives.

ODI comments on Senate Bill 4

Our examination of Ohio insurers has indicated that updates and revisions to the prompt payment law will effectively ensure compliance with the prompt payment law. Senate Bill 4 as passed by the Ohio Senate will address many of the multifaceted issues and challenges that are often associated with the prompt payment of health care claims. The prompt payment of health care claims is important to consumers, as well as providers and insurers, and resolution of prompt pay issues is a vital component to instilling confidence in our health care system. A by-product of Senate Bill 4 may be that channels of communication will be established between providers and insurers regarding the payment of claims.

The bill that you are considering contains the following points:

• Claim forms: Provides the Department the authority to adopt by rule a standard claim form; the HCFA 1500 or UB 92 (or its successors) which is the form used by insurers, doctors, and hospitals nationally when submitting health care claims. The purpose is to standardize the form used by providers and insurers and the accurate completion of this form is the first step in the claims paying process.
• Requests for additional information: The bill provides a process for facilitating the exchange of information needed to process a claim. In information shared with us, both parties (providers and insurers) are frustrated with these requests for additional information or the lack of insufficient information filed with the initial claim. The Department supports the process described in the bill because it outlines a very detailed process for requesting additional documentation and timelines for requesting and processing claims upon receipt of that information.
• Time frames: Senate Bill 4 removes the current 24 day standard and replaces it with a general rule of payment required in 30 days. The bill allows that time frame to be extended to 45 days if there is a need for reasonable supporting documentation to pay the claim. The Department is comfortable with this time frame as it reflects what most insurers currently include in their time frames.
• Unfairly or Unnecessary Delays: The Department sought this provision based on our experience in our most recent examination of Ohio health insurers. This provision will guard against systematic business practices which unfairly or unnecessary delay payment of a claim. For example, this language should address concerns raised by doctors regarding unreasonable requests for information or claims that are continually lost by the insurers.
• System to Check Claim Status: The Department supports this language which will facilitate the exchange of information on claims between providers and insurers. Most companies have told us that they already have Internet sites and if not already done so, plan to develop an Internet site for claims status.
• Administrative Remedies: In recent testimony a question was raised regarding the administrative remedies posed in this bill and claimed that SB 4 sent a signal that late payment of a claim is the most egregious violation of the law. The Department would like to take this opportunity to address this issue and explain how these remedies are not excessive but a reasonable framework targeted at compliance with the law.

As introduced, Senate Bill 4 proposed that in addition to our current authority, the Department could levy a statutory fine not less than $1,000 per violation and up to $10,000 per violation. The purpose of this language, which we support, was to give the Department more flexibility in developing a remedy than what is in current law.

Although supportive of the intent, the Department was not confident the administrative remedy proposed was realistic or workable and asked for an amendment that modified the current structure, and through significant compromise the current standard was added to the bill. Simply put, Senate Bill 4 now limits our regulatory options to:

• Penalties: Penalties are in lieu, not in addition to, of any other administrative penalties (revoking or suspending a license.) The Department can not do both. These penalties are reflective of penalties negotiated under our most recent examination, the authority in other states, and measured when taken into account the current premium volume written by Ohio insurers. A review of Ohio's insurance code indicates violations by agents, viatical settlement providers, and insurers are comparable (and in some cases even greater) depending on the violation. Finally, in a further modification, the Department agreed to divert 65% of all fines that we collect for prompt payment to the General Revenue Fund.
• Caps Penalties: Caps penalties at $100,000 for a first offense. Senate Bill 4 as introduced had no cap on penalties and no limit on the time frame for determining an offense. S.B 4 would ensure that penalties are limited to a six-year time span.
• Statutory Compliance Rate: Establishes in law that the Department must use the compliance rate recommended by the National Association of Insurance Commissioners. The majority of other states commonly use this rate when regulating national carriers such as those operating in Ohio. Please note this compliance rate ensures that companies will not be "dinged" for a single violation but must demonstrate a systematic pattern or practice of not paying a claim when they have all information to do so.
• Methodology: Requires the Department to review 6 months worth of data when conducting an examination of a company. A concern was raised that the most recent examination that encompassed 30 days worth of claims data was not reflective of a company's performance. Therefore, the Department agreed to review six months worth of claims data to ensure a comprehensive picture is developed of insurers claims practices.

In conclusion, the Department would answer the question posed last week by saying that the administrative remedies are very much in line with current remedies in insurance law. There are some remedies that pose less of a fine for lesser infractions of the law (non-submission of financial information), but there are penalties that pose higher monetary fines with no caps and possible imprisonment for violation of insurance laws. In all cases, the department has a legal standard of proof to overcome and all insurers have hearing and appeal rights.

Finally, I want to assure you that the Department will continue our efforts to ensure that Ohio insurers are in compliance with prompt payment. The Department has made significant inroads to raising awareness of prompt payment among all parties. The Department appreciates the efforts of Senators Mumper and Wachtmann to develop a consensus on this bill and the efforts of this committee to examine this issue.

This concludes my testimony and I would be happy to answer any questions.