AUSTIN — Texas health insurers and hospitals clashed Wednesday over whether the insurance companies face a dire threat from computer-assisted, mischief-making trial lawyers.
The issue is whether plaintiffs’ lawyers, assisted by data mining companies, are about to collect billions from insurers for dragging their feet on reimbursement claims.
In recent months, insurers and advocates of lawsuit limits have warned of potential abuse of a penalty system on insurers that state lawmakers embraced in 2003 as a way to discourage chronically late payments to doctors and hospitals.
Insurers and lawsuit-limit proponents have pointed to solicitation letters that San Antonio personal-injury lawyer Mikal Watts sent to fellow lawyers in 2013.
In the letters, Watts offered incentives for lawyers to refer health care providers to his joint venture with data mining companies – a 20 percent “referral fee on any fees earned.”
While Watts did not specify the fee arrangement his law firm had with 29 hospitals and thousands of other medical caregivers, he speculated that Texas providers could recover between $6 billion and $8 billion by invoking the Texas Prompt Pay Act.
But Dallas lawyer Jeff Cody, who represents nonprofit hospitals, told a House panel Wednesday that a recent court decision probably would dissolve efforts to gin up the huge lawsuits that insurers fear.
Last month, a three-judge panel of the 5th U.S. Circuit Court of Appeals ruled that penalties and interest the Texas law slaps on late payers don’t apply to missteps by employers’ “self-funded” health plans.
No one tracks the number of people enrolled in the plans, which Congress nearly a half-century ago exempted from most state regulations. But it’s believed to be many millions of Texans.
“The 5th Circuit opinion has done away with that particular niche practice,” Cody said of Watts’ solicitations.
“I understand Mr. Watts has completely gotten out of this area of practice,” Cody told the House Insurance Committee.
On Wednesday, Watts did not respond to emails and a phone call to his office.
The court’s ruling means the 2003 law’s sanctions against late payments apply only to “fully insured” health policies regulated by the Texas Department of Insurance, said insurance lobbyist Jamie Dudensing. The fully insured plans cover about 4.5 million of the state’s 27 million people, said Dudensing, chief executive of the Texas Association of Health Plans.
In late January, the Texans for Lawsuit Reform Foundation, which does research for the business-backed group that successfully has pushed for caps on lawsuit damages, issued a report calling Texas’ prompt pay law “among the most punitive in the nation.”
Dudensing testified that the law’s arcane penalty provisions perversely encourage hospitals to generate a new “revenue source” by increasing their billed charges – rates that only uninsured patients pay. People with insurance pay discounted or “contracted” rates, which insurers have negotiated with hospitals.
That’s because the penalties are levied against the difference between billed and contracted charges – a procedure no other state uses, she said.
In last year’s legislative session, insurers sought to exploit Watts’ solicitation letters and pass a bill reducing the 2003 law’s maximum penalty amounts by 95 percent and creating a two-year statute of limitations on providers’ bringing late-pay claims. Providers, especially hospitals, and trial lawyers bottled it up in committee.
Next year, the insurers simply want lawmakers to remove billed charges from penalty calculations, Dudensing said. Instead, insurers will ask lawmakers to impose annual interest of 18 percent on unpaid amounts owed to providers, she said.
Texas Association of Business president Bill Hammond said shifting to interest-only sanctions is appropriate.
He noted that according to the insurance department, there were $100 million in prompt-pay penalties last year – with half going to the providers and half to the state treasury.
“This is a hidden tax on the people,” he said.
But former Texas Trial Lawyers Association president Bryan Blevins of the Provost Umphrey law firm in Beaumont, rural hospital lobbyist Don McBeath and Gary Stankowski, chief executive of a Houston-based hospital “revenue recovery” firm, testified that the current penalty system is working.
“We see the compliance in Texas as being much better than in other states, and we attribute that to the penalties,” said Stankowski, who called the 2003 Texas law “a brilliant piece of legislation.”
Cody, the Dallas hospital lawyer, said the law hammers late payments but doesn’t do enough to discourage underpayments.
Committee member Rep. Kenneth Sheets, R-Dallas, asked insurers and hospitals to seek a compromise. It should discourage lawyers such as Watts from forming “a cottage industry” to sue insurers, as first described in this January 2013 Austin American-Statesman story, Sheets said. At the same time, maybe legislators could crack down on underpayments, he said.
“The Legislature hates being stuck in the middle of these battles,” he said.