Report 98104 Summary - March 1999

Health Care Payment Surveys:

Providers and Payers Have Differing Views Over a Complex, Sometimes Unregulated, Health Care System

RESULTS IN BRIEF

In an effort to slow significant increases in costs, the health care industry in California has evolved over the last 20 years from a traditional indemnity insurance environment to managed care. Through its efforts to curb costs, managed care has generated criticism concerning its impact on the quality of medical care, effectiveness of regulation, and financial soundness of the health care industry. Furthermore, recent bankruptcies within the health care industry have heightened these concerns. One aspect of these concerns, the extent of delayed payments to physicians and its effect on their practices, is the subject of this report.

The flow of payments to physicians, though once a simple and direct payment from the patient or the insurance company, can be complicated under managed care. What most consumers do not know is that most payments originating with a health plan pass through one or more intermediaries before reaching the physician. To develop a full picture of this flow of payment, we surveyed representatives of all types of health care entities: the providers of services, which include physicians and the medical groups to which they belong, and the payers for services, which are the health plans and intermediaries responsible for performing administrative functions for providers they contract with. Medical groups have a dual role, functioning as intermediaries and providers, and their survey questions and responses reflect both of these roles.

To ascertain whether physicians and medical groups are experiencing difficulties receiving payments under a managed care environment, we surveyed 1,300 physicians, 1,025 medical groups, and a cross-section of health care payers, from health maintenance organizations (HMOs) and preferred provider organizations (PPOs) to a variety of intermediaries performing administrative functions, such as independent practice associations (IPAs) and management services organizations (MSOs).

One-half of the physicians cited some delays in payments from one or more of the health care payers with whom they have experience. Overall, about 51 percent of physicians responded that HMOs, IPAs, or medical groups pay their capitation or fee-for-service claims late. Fee-for-service claims paid by IPAs were a frequently cited type of delayed payment, but late HMO capitation payments and tardy medical group reimbursements were also mentioned. Similarly, 74 percent of medical groups reported experiencing some type of delayed payment from HMOs or IPAs for either capitation or fee-for-service payments. In addition, some medical groups expressed frustration with errors in enrollment lists supporting capitation payments. In response to our query about the impact of delayed payments on their practices, 28 percent of the physicians and 38 percent of the medical groups claim that delayed payments negatively affected the fiscal aspects of their practices. However, few indicate that delays affect their patient care.

It is in the area of timing of payments that responses from providers and payers are the most divergent. Interestingly, very few health care payers reported delays, and most believe they receive and make payments within reasonable time frames. Specifically, health care payers state that capitation and fee-for-service payments are timely. However, 25 percent of both the MSOs and IPAs cited some experience with inaccurate enrollment data. In addition, the majority of medical care payers indicated that they pay uncontested claims within 45 days. Despite advances in electronic commerce, very few of the intermediaries responded that they pay claims electronically.

Different entities reported varying experiences related to risk pool distributions. A risk pool is an arrangement between a health plan and an IPA or medical group in which both share the risk of the cost of designated services. MSOs and IPAs were generally satisfied with the timing of the distribution. However, nearly half of the intermediaries, including some medical groups, report contesting at least part of their risk pool distributions from HMOs and point of service plans.

Furthermore, three-quarters of medical groups claim they rarely or never receive interest on delayed payments from health plans. This is similar to the experience of MSOs. In addition, some medical groups indicated that IPAs sometimes pay less than the contracted rate on fee-for-service claims.

The results from our surveys have implications for California's regulatory structure over its health care industry. In some areas, the industry is heavily regulated, but in others, there is little or no regulation. For example, while the State does not regulate intermediary entities, respondents to our surveys expressed concerns about delayed payments from IPAs. Also, many PPOs, which are the second most common type of health plan in California, are not subject to direct state regulation.

Moreover, some of the current statutory and regulatory controls are weakened because of the impact of intermediaries on the industry. For instance, regulations requiring prompt reimbursement of providers' claims are difficult to enforce when the payments pass through several hands before reaching the providers.

Finally, the surveys indicated that the differing perspectives communicated in the responses from providers and payers are affected by the complexity in the administration of the health care industry and that clearer communication of vital information is needed.

RECOMMENDATIONS

The Legislature should consider doing the following:

  • Establish direct state regulation over the activities of health plans not currently regulated or monitored and replace the current, redundant oversight by health plans over health care intermediaries with centralized state regulation. As part of this regulation, consider requiring all involved entities to provide at least semiannual financial statements as well as the annual audited financial statements to a designated state regulatory department.

  • Require health plans to submit to providers and intermediaries enrollment lists that are the basis for capitation payments. Thus, the data for the payment should be identical to the information on the enrollment lists.

  • Reexamine the provisions of the Knox-Keene Health Care Service Plan Act of 1975 related to the limitation on health plans' administrative fees when intermediaries take on some of several administrative functions of health plans. Also, consider establishing limits on administrative fees charged by intermediaries and a system for centrally monitoring the compliance of all applicable health care entities with these limits.


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