At some point, practically all healthcare providers will find themselves in a reimbursement dispute.
The dispute will likely relate to underpaid claims by an insurance company with whom the provider has a contract. When settlement negotiations break down, litigation is the next step to recovery, but a potentially expensive and time consuming one. Before pursuing litigation, providers should analyze whether it makes business sense. Here are five factors to consider:
1. Proving liability
The burden of proving that an insurance company underpaid a claim falls on the provider. As the claimant, the provider is obligated to show what the insurance company's contractual obligations were and prove that the insurance company failed to satisfy them. This can become complicated as provider agreements are often fraught with ambiguity. This ambiguity can cause the litigation to take longer than expected, making the "intent of the parties" an issue at trial. Significant time may be required briefing this one issue, and the stakes will be high. The determination of the issue will heavily impact the course of the litigation.
2. Potential defenses to liability
Insurance companies assert "defenses" in an attempt to avoid liability by blaming the provider or others for the damages being sought. For example, they oftentimes contend that the provider has somehow waived its claim by accepting the original payment without objection and thus acquiescing in the insurance company's amount. There needs to be a good explanation for any delay between the time of underpayment and the time of complaint in order to rebut any allegation of a "money grab." Similarly, the insurance company may contend that the provider's claims are barred by the statute of limitations. The law imposes a set amount of time for a claimant to file suit for breach of contract, which can differ by state. Provider agreements, however, may impose a shorter time period to assert a claim. If the provider asserts a claim outside of this time period, it may be barred by limitations. Also, the insurance company may contend that the provider failed to exhaust the insurance company's internal administrative appeals process. If the provider agreement makes this a prerequisite to litigation, failure to follow the process may cause the litigation to stall or be dismissed.
3. Proving damages
The provider must prove that the insurance company caused it to suffer an underpayment of a certain amount. This can get complicated, especially when dealing with a large volume of claims or reimbursement amounts based on Medicare. Because the information necessary to prove damages can be overwhelming and confusing, it must be carefully presented. This typically requires that claims be grouped in such a way that each claim in a group can be proved by a representative sample from the group. It is important to find the commonality among the claims so that they can be efficiently slotted. Otherwise, the presentation will be ineffective. Furthermore, reimbursement amounts are often a percentage of Medicare rates. The Center for Medicare and Medicaid Services updates these rates on an annual basis with quarterly supplements. In proving damages, the provider must make sure that it is using the correct rates, adjusted for locality, for each claim being presented, or the rate will be inaccurate. Additionally, specific treatment for certain procedures stated in the contract must be given, such as sequencing of procedures, "carved-out" amounts for certain procedures assigned a specific reimbursement rate, and procedures "excluded" from reimbursement. If the wrong rate is applied, or certain contractual adjustments are not made, the inaccuracy of the information being presented will call into question the credibility of all the damages sought by the provider.
4. Employee Retirement Income Security Act preemption & prompt payment penalties
Several states allow providers to collect statutory damages, in addition to breach of contract damages, when insurance companies fail to "promptly pay" provider claims. If the insurance company does not promptly pay the provider's claim, it could suffer a hefty statutory penalty. Undoubtedly, these "prompt pay" statutes are appealing to providers. They give an additional, often punishing, bump to the amount of recovery available. For instance, in Texas, an insurance company who pays a provider's $10,000 claim after 91 days from the date of receipt will be required to pay, not only the $10,000 claim, but also an additional amount of $10,000 as a penalty along with 18% annual interest. That is on just one claim! It is easy to imagine the impact on potential damages when there are hundreds or thousands of claims at issue.
Insurance companies are trying to mitigate this threat by asserting various "preemption" arguments, primarily based in ERISA, when they serve as third-party administrators for self-funded employee benefit plans. They assert that the litigation is really aimed at a self-funded plan and, therefore, only the remedies available under ERISA are recoverable, which do not include prompt pay damages. Several cases hold that there is no ERISA preemption when the provider seeks prompt payment penalties in connection with an insurance company's failure to pay correctly under a provider agreement, even when the insurance company serves as a third-party administrator. This is because the provider's claim is centered on its contract with the insurance company, rather than the terms and conditions of the self-funded plan. The idea is that the claims concern the rate of payment, rather than the right of payment. Nevertheless, preemption issues continue to create uncertainty concerning recovery of prompt pay penalties
5. Arbitration
Provider agreements often state the process for resolving disputes between providers and insurance companies. Usually, this involves a phased approach, beginning with good faith negotiations, mediation and then ultimately arbitration. Arbitration is usually binding, meaning that the parties are bound by the arbitration panel's ruling. There is no right of appeal, and the panel usually applies a flexible (and sometimes lax) standard for presenting evidence. Furthermore, arbitration can be costly. Unlike a judge at the courthouse, the arbitration panel charges for its time and expenses, which can escalate quickly. Nevertheless, arbitration has its advantages. The discovery process is usually narrowly tailored to address the main issues, resulting in a limited number of depositions and document requests. The parties have a hand in selecting the arbitrator, which allows the parties to have individuals with subject matter expertise decide the matter. This is particularly helpful with healthcare-related claims, where there is abundant regulation and industry custom that may be foreign to someone who does not work in the healthcare industry. Most importantly, the arbitration is private. What happens at the arbitration is not made public, and the parties are often bound by confidentiality obligations. This helps protect the confidentiality of patient information and sensitive business information exchanged at the hearing.
Conclusion
The decision to pursue an underpayment claim against an insurance company should be made only after careful consideration. Litigation involves a significant investment of time and resources. Moreover, it can be an expensive journey with some frustration. Nevertheless, keeping these five things in mind and staying prepared, pursuing a claim for underpayment can pay off.
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