commercial payor prompt pay requirements apply to claims reflecting
dates of service on or after October 1, 2002.
The commercial payor prompt pay requirements do not apply to pharmacy
The Medicaid prompt pay requirements apply only to claims submitted
electronically to Qualified Health Plans.
significant concern for health care providers is the prompt collection
of accounts receivable from payors. Cash flow is vital to the success
of a health care provider now, more than ever, as a result of reductions
in the growth of Medicare and Medicaid spending, which otherwise accounts
for a large percentage of the typical health care provider’s income. As
the amount of reimbursement is reduced, it becomes more important to health
care providers that they collect the amounts they are due on a timely
basis. Moreover, the recent experience of Michigan health care providers
with the rehabilitation of OmniCare Health Plan, and the losses those
providers are being forced to absorb, demonstrate the danger of maintaining
large receivable balances with any one third-party payor.
the same time, numerous factors have combined in recent years to make
it more difficult for health care providers to realize payment from third-party
payors on a timely basis. These factors include the administrative burden
of complying with various third-party payor claims procedures, the absence
of effective prompt payment laws, the lack of enforcement of such laws
when they do exist, and the impracticality of litigating payment disputes
on a claim-by-claim basis. These factors, combined with providers’ general
level of frustration with third-party payor payment practices, has resulted
in a number of high profile class action lawsuits against numerous third-party
payors alleging prompt pay violations.1
addition to class action litigation, state regulators have made some efforts
to force prompt payment by fining delinquent managed care organizations
substantial amounts for prompt pay violations, including a recent $1 million
fine levied against Kaiser Permanente’s Community Health Plan division.2
State legislatures also have come to the aid of providers, enacting
prompt pay statutes that require third-party payors to comply with legislatively
mandated timeframes when conducting their payment processing activities.
has not pursued the hefty fines other states have when it comes to prompt
pay violations. Nor has Michigan been the site of provider class action
lawsuits against health maintenance organizations (HMOs) or health insurers,
though individual health care providers have sought to litigate their
claims payment disputes.3
The Michigan legislature, however, has recently gotten into the game,
perhaps belatedly, by enacting prompt pay laws that will make getting
paid on time more likely for health care providers practicing in Michigan.
Payor Prompt Pay Requirements
Insurance Code recently was amended to incorporate detailed requirements
for claims processing and payment that must be followed by commercial
health insurers, HMOs, and Blue Cross Blue Shield of Michigan (BCBSM).4
The commercial prompt pay requirements, unlike the Medicaid prompt pay
requirements discussed below, apply whether the claim is submitted electronically
or on paper. The commercial payor prompt pay requirements apply to claims
reflecting dates of service on or after October 1, 2002.5
new commercial prompt pay requirements are significant for health care
providers because they give providers a direct right to prompt payment
that can be enforced against commercial payors. Previously, the Insurance
Code’s timely payment provision directly benefited only insureds and persons
‘‘directly entitled to benefits under [the] insured’s contract of insurance’’
(typically, not health care providers).6
commercial prompt pay requirements apply only to Health Plans.7
These include commercial health insurers (including Medicare Supplement
insurers), commercial HMOs, and BCBSM. Medicaid HMO claims, workers compensation,
and no fault automobile insurer claims are not governed by these prompt
pay requirements. In addition, claims processed by Health Plans under
administrative services only arrangements (such as when an HMO or BCBSM
provides claims processing services to a self-funded employer health benefit
plan) are not regulated by the commercial prompt pay requirements even
though such claims are being processed by an entity that otherwise might
be a Health Plan. To the extent that such plans constitute ERISA plans;
however, their claims payment activities will have to comply with regulations
recently promulgated by the U.S. Department of Labor, which take effect
later this year. See 65 Federal Register 70246 (November 21, 2000). These
regulations do not directly dictate the timeframes for payment processing
by ERISA plans, but govern the timeframes within which ERISA plans must
make determinations and handle appeals regarding plan beneficiaries’ requests
Facilities and Health Professionals
commercial prompt pay requirements apply only to claims for services rendered
by a licensed Health Facility or Health Professional.8
A Health Facility is any facility or agency licensed by the Department
of Community Health pursuant to one of the provisions of Article 17 of
the Public Health Code.9
A Health Professional includes any person licensed by the Department of
Consumer and Industry Services under one of the provisions of Article
15 of the Public Health Code.10
While these definitions should encompass the vast majority of health care
providers, certain providers, such as independent durable medical equipment
suppliers, appear to be omitted as a result of not being subject to licensure.
In addition, by their terms, the commercial prompt pay requirements do
not apply to pharmacy claims.11
HMO Prompt Pay Requirements
June 2000, Michigan’s Social Welfare Act was amended to require Michigan’s
Commissioner of the Office of Financial and Insurance Services (commissioner)
to establish a timely claims payment processing and payment procedure
applicable to health care providers submitting claims for services covered
by Michigan’s Medicaid program.12
The commissioner eventually promulgated that procedure on November 16,
Medicaid prompt pay requirements apply only to claims submitted to Qualified
Health Plans (QHPs), licensed HMOs that have entered into contracts with
the State of Michigan to arrange for the provision of Medicaid covered
services to Medicaid recipients in exchange for a fixed, prepaid monthly
payment based upon the number of Medicaid recipients enrolling with that
HMO. Thus, the Medicaid prompt pay requirements are not applicable to
claims submitted to the state under the traditional, Medicaid fee-for-service
program. In addition, the Medicaid prompt pay requirements currently apply
only to claims submitted electronically by health care providers. Thus,
they do not apply when claims are submitted on paper.
Importance of a Clean Claim
prompt pay laws in other states, Michigan’s prompt pay rules apply with
respect to clean claims. That is, a Health Plan’s or QHP’s duty to pay
is conditioned upon the provider submitting a claim that has all the information
necessary for the claim to be processed. What information is necessary
for a claim to be deemed clean is, therefore, critical to the effectiveness
of Michigan’s prompt pay statutes. Many prompt pay laws have been criticized
as ineffective, allowing third-party payors to manipulate the clean claim
requirement to avoid paying claims within prescribed timeframes or interest
and penalties on late payments.14
This is particularly the case when the statute fails to define what
a clean claim is, or when the definition permits the third-party payor
broad discretion in determining what information is necessary to make
a claim ‘‘clean.’’
the commercial and Medicaid prompt pay rules define a clean claim as one
that contains certain standard information (patient, date and place of
service, service code, etc.).15
Unfortunately for providers, both also provide that a claim is not clean
unless it contains such additional documentation as is required by the
QHP or Health Plan. Thus, a Health Plan has some discretion with respect
to the information it may require for a claim to be clean.
is an overview of the specific claims processing and payment requirements
applicable to Health Plans and Qualified Health Plans under Michigan prompt
care providers must bill the Health Plan or QHP within one year from the
date of service, or one year from the date of discharge with respect to
While this is generally favorable to providers, no exception exists to
extend the timeframe for claims submission in circumstances that may be
beyond the control of the provider, such as when the provider has attempted
to coordinate benefits with other potential payors and is awaiting a payment
determination from those other payors.
of Clean Claims
Health Plan or QHP must pay all clean claims within 45 days after
The same timeframe applies whether the claim is submitted by a contracted
provider or an out-of-network provider.
and Correction of Defective Claims
30 days of receipt of a claim, the Health Plan or QHP must furnish the
provider with written notice of any and all defects with the claim.18
The same timeframe applies whether the claim is submitted by a contracted
provider or an out-of-network provider. The provider has 45 days to correct
the defect in the case of a claim rejected by a Health Plan, and 30 days
to correct the defect in the case of a claim rejected by a QHP.19
of Corrected Claims
case of a Health Plan that has rejected a claim as not clean, the 45-day
timeframe for payment of clean claims is tolled from the time the provider
receives notice of a defect until the time the provider’s response is
received by the Health Plan.20
Thus, once the provider has corrected the defect, the Health Plan
must pay within 45 days, less the number of days that passed before the
provider received notice of the defect in the claim from the Health Plan.
QHPs, on the other hand, have 30 days, measured from the date that the
defect in the claim is corrected by the provider, to pay the corrected
claim not paid by a Health Plan or QHP within the required timeframe will
bear simple interest at a rate of 12 percent per annum.22
Health Plans nor QHPs may deny an entire claim if a defect relates only
to some services listed on the claim and one or more services listed on
the claim are unaffected by the defect and therefore payable. Rather,
the Health Plan or QHP may deny payment only for those services affected
by the defect, and must pay the non-defective portion of the claim within
the normal timeframes.23
An exception exists; however, with respect to Health Plans, in that
a Health Plan need not comply with this requirement if the provider participation
agreement between the provider and Health Plan states otherwise. It should
be noted that the commercial prompt pay statute specifically suggests
that the parties may alter this obligation via the terms of a participation
agreement. This makes clear that other aspects of the commercial prompt
pay law apply even if there are provisions to the contrary in the provider’s
participation agreement. The Medicaid prompt pay requirements also apply
regardless of what has been agreed upon in the provider’s participation
agreement with the QHP.
are prohibited from submitting duplicate claims to a Health Plan or QHP
unless and until the 45-day timeframe for payment has expired.24
or a Health Plan may file a complaint with the Commissioner of the Office
of Financial and Insurance Services if it believes there has been a violation
of the commercial prompt pay requirements. If the commissioner finds in
favor of the complainant, he may impose a fine of up to $1,000 per violation
and up to a total of $10,000 for multiple violations. Filing a complaint
is not a necessary pre-condition to initiating a lawsuit, nor does the
filing of such a complaint preclude a party from bringing a lawsuit.25
may request that the commissioner review a QHP’s refusal to pay, or the
provider may elect to pursue arbitration pursuant to the arbitration process
that QHPs are required to make available. Although the Medicaid prompt
pay rules do not establish specific penalties for violations, the commissioner
has the authority to assess penalties for violations of the prompt pay
rules, including unfair trade practice penalties for persistent violations.26
Michigan’s prompt pay statutes definitely represent a step in the right
direction for health care providers, the effectiveness of these statutes
will depend, in large part, upon the manner in which complaints are handled
by the Commissioner of the Office of Insurance and Financial Services.
Swift and decisive action by the commissioner, including the imposition
of substantial penalties, as have been seen in other states, will ensure
that the law has enough ‘‘teeth’’ to be effective. If on the other hand,
these statutes do nothing more than convert the time providers wait for
third-party payors to pay claims into time spent waiting for the commissioner
to enforce the rules, these statutes may largely be viewed as ineffective.
Only time will tell.
1. See, e.g., In Re: Managed Care
Litigation, 2001 WL 220108 (March 2, 2001).
Managed Care Week (October 23, 2000) p 6.
See, e.g., Henry Ford Health Sys v Great Lakes Health Plan, No.
99-915773 (Mich. 3rd Cir. Ct. 1999).
2002 Mich. Pub. Act 316; 2002 Mich. Pub. Act 317.
Id. at Enacting Section 1.
2000 Public Act 187.
See OFIS of Financial and Insurance Services Bulletin No. 2000-09.
See Paige, Leigh, ‘‘Clean-Claim’’ Rules Defang State Prompt Pay Laws,
American Medical News (December 4, 2000).
MCL 500.2006(14)(a); OFIS Bulletin No. 2000-09, p 2 (‘‘Clean Claim Definition’’).
MCL 500.2006(8)(f); MCL 400.111i(2)(d).
MCL 500.2006(8)(a); MCL 400.111i(2)(f).
MCL 500.2006(8)(b); MCL 400.111i(2)(g).
MCL 500.2006(8)(c); MCL 400.111i(2)(h).
MCL 500.2006(8)(a); MCL 400.111i(2)(f).
MCL 500.2006(10); MCL 400.111i(3).
MCL 500.2006(8)(a); MCL 400.111i(2)(e).
See OFIS Bulletin No. 2000-09, p 3 (‘‘Penalties’’).