Reform Package Should Improve Provider Cash Flow

Saturday, January 17, 2004 | 0

One of the messages sent by the Legislature in the AB227/SB228 package of reform bills that are now law is that the California work comp system needs to modernize and implement the tools of 21st Century business in a more wholesale manner - that's right, computer networking for medical billing and reporting. The intended consequence of the amendments made to Labor Code section 4603.4 is to improve efficiency in the system and thereby reduce costs. The unintended consequence of the system is improved medical service provider cash flow, which should provide an incentive for providers to (a) convert to electronic billing, and (b) either stay in comp or increase exposure to comp-related business.


Labor Code Section 4603.4
Labor Code Section 4603.2

Little noticed by most, the Legislature amended Chapter 2, Article 2 (Medical Treatment), Labor Code section 4603.4 to provide that the Administrative Director shall promulgate rules and regulations for electronic medical billing. Subsection (c) provides:

"The rules and regulations requiring employers to accept electronic claims for payment of medical services shall be adopted on or before January 1, 2005, and shall require all employers to accept electronic claims for payment of medical services on or before July 1, 2006."

This section amendment could be interpreted as just a legislative mandate that employers (read carriers and TPAs) incur additional costs to expand their computer networks outside the boundaries of their offices. Note that there is no corresponding mandate on medical providers to likewise submit billings electronically or to update their systems to comply with such requirements.

However, subsection (d) of 4603.4 provides a huge incentive for physicians that are treating injured workers to convert to electronic billing by reducing the amount of time the employer has to make payment:

"Payment for medical treatment provided or authorized by the treating physician selected by the employee or designated by the employer shall be made by the employer within 15 working days after electronic receipt of an itemized electronic billing for services at or below the maximum fees provided in the official medical fee schedule adopted pursuant to Section 5307.1. If the billing is contested, denied, or incomplete, payment shall be made in accordance with Section 4603.2." (Italics added for clarification, noted below.)

The alternative to electronic billing is to submit paper bills and be subjected to the more liberal time constraints of 4603.2 where the carrier/TPA has "45 working days after receipt of each separate, itemized billing, together with any required reports and any written authorization for services that may have been received by the physician" to make payment (unless the employer is a public entity, then it is 60 days).

Let's dissect 4603.4 and 4603.2 a bit to see where the efficiencies really lie - there are some defects in the statutes as authored, but since the regulations don't need to be ready for about a year, and employers aren't required to accept electronic billing for two years, there is time for lawmakers and regulators to clean things up.

First and foremost, as noted by the italics we added to "or authorized", if the provider (might be a physical therapist, durable medical equipment provider, or diagnostician) is "authorized" by the treating physician to perform the service or provide the goods, then they too enjoy the benefits of the shortened time period for payment submission.

Next, there is no distinction in 4603.4 between public entities and general, regular, run-of-the mill employers. Those providing services or goods to injured employees of governmental entities will enjoy the same cash flow benefits as those providing service or goods to non-governmental workers.

Perhaps this was an oversight, perhaps the Legislature is leaving it up to the Administrative Director to tackle, or perhaps the Legislature really wants to make things easier for medical providers to be paid, but 4603.4 says nothing about related documents, etc.

4603.2 does not mandate payment within the 45 working-day period unless the billing is accompanied by "any required reports and any written authorization for services that may have been received by the physician."

4603.4, on the other hand, simply provides that payment "shall be made by the employer within 15 working days after electronic receipt of an itemized electronic billing for services at or below the maximum fees" established by the then governing fee schedule. No reports! No special documentation! A veritable cornucopia of medical billing/cash flow nirvana! Can comp really be this easy?

The likelihood is that the requirement of reports and related documentation accompanying the billing for payment is an oversight, and this section will receive play time in the future as this oversight comes to the attention of the insurance community, ergo a legislative/regulatory body.

However, a significant defect exists now that the employer community probably won't bring to legislator's attention, and that is the disparity of time limits applicable to contested billings.

4603.2 requires the employer to advise in writing the medical provider of any contested portion of a billing within 30 days of receipt of the bill. 4603.4 says to follow 4603.2 on this issue: "If the billing is contested, denied, or incomplete, payment shall be made in accordance with Section 4603.2." Thus, there appears to be a 15-day "grace period" built into 4603.4 by default.

In addition, 4603.4 is silent as to penalties. 4603.2 provides for a 15% penalty on unpaid, uncontested (or improperly contested) billings after the 45/60-day pay period. Arguably the penalty provision of 4603.2 could apply as a result of the quoted reference in the previous paragraph. But 4603.4 doesn't say that, so on the other hand only a general section 5813 penalty may apply.

Nevertheless, the trend has been established, and vendors are already looking to provide services and products to make the intended efficiencies a reality.

One such vendor is MedfoNet, out of Mill Valley, California (on the Web: http://www.medfonet.com/). President Tina Maloney has put together an Internet based system of electronic billing and reporting that ties together medical vendors, carriers, attorneys and injured workers to meet the dictates of 4603.4. Other systems are also available, with many others coming down the product pipeline.

Though the medical community was the scapegoat of the last 'reform' initiative, some gems were provided. 4603.4, though still in need of polishing, is one such gem.

Author, David DePaolo, is President and Editor-in-Chief of workcompcentral.

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The views and opinions expressed by the author are not necessarily those of workcompcentral.com, its editors or management.