HB 1534 – TPA’s Can’t Comply Because PPO Networks Won’t Disclose

This is an URGENT email we received this morning:

We apologize for the late notice but we just received notice that the Texas House of Representatives Insurance Committee is meeting today starting at 1:00 and they will be voting on HB 1534. This is a bill that is aimed at the “Silent PPO” issue but has some unintended consequences that are bad for our industry.

In summary, HB 1534 attempts to end the practice of “silent PPOs” or “rental networks” which give provider discounts to individuals or groups that are not entitled to the discounts because the provider hasn’t agreed to give the discount to that particular individual or group.

It seeks to solve this problem by requiring “contracting entities” to register, disclose and report certain information regarding their business structure and networks. HB 1534 also requires self funded employers and third party administrators to comply with its provisions.

This requirement presents several problems. First, neither the employer nor the TPA have the information required by the bill, because they have not contracted with the provider and are not privy to the agreements between the network and the provider. Second, the only information that the TPA has regarding the network is the name and address of its client/employer who is purchasing access to the network; the TPA currently provides this information to the PPO network. Finally, self funded plans are regulated by federal ERISA laws and this bill would interfere with that regulation.

To view the complete text of HB 1534, go to Texas Legislature Online and enter HB 1534 under bill status. The vote is scheduled for 1;00 TODAY!!!!!!!!!!!!!!!!!!!!!!!!!!!! Here is a template for employers.

More information about the bill and who to contact is below.

I work for company domiciled in _______________, TX and we employ approximately _______ employees in Texas . We currently utilize a third party administrator (TPA) who administers our employee benefit plans and we are very concerned about HB 1534. The bill, in its current form, will impose very onerous reporting obligations of information that we are not privy to simply because they have contracted with a PPO network to provide access and discounts to health care for our employees. It also will likely increase the cost of service for our employees and their families, and will certainly increase our cost of providing benefits for our employees.

Since we sign contract with these PPO networks (contracting entities in the bill), we would be defined as a third party and therefore subject to the reporting requirements of the bill. These requirements include disclose all relevant terms, limitations, and conditions necessary to comply with the provider contract; provide each third party of the termination of the third party’s provider network contract not later than the 30th day of the contract termination; provide coding guidelines and fee schedules; and provide 90 day advance notice of coding and fee schedule changes.

We will have not knowledge of this information, nor will our TPA likely be able to provide it to us. (PPO’s work behind the curtain and will not disclose fee schedules) The provider contracts directly with the PPO network and then the PPO network “rents” access to its group of providers and discounts to employers.

We are not given access to the contracts with the providers (even when requested are told that they are proprietary and confidential) or the fee schedule, and this information is not provided to our TPA either.

The claims are sent to the PPO Network which re-prices the claims according the contract provisions between the network and the provider. These claims are then sent to the TPA to have the claim processed. We will never be able to comply with the requirement of HB 1534.

As you can see, due to the nature of the relationship and the contracts, employers and TPAs would always be at a loss as to how to report this information. (why the heck do people enter into contracts that they cannot see, review or evaluate?)

We request that self-funded plans and their administrators be exempted for this bill and if that cannot happen; this bill not to pass. For these reasons, I respectfully request that you do not support this bill and its onerous and cost increasing effects on Texas employers.

PLEASE CONTACT THESE REPRESENTATIVES IMMEDIATELY Chair: Rep. Smithee (R) Amarillo 512-463-0702 john.smithee@house.state.tx.us Rep. Taylor (R) League City 512-463-0729 larry.taylor@house.state.tx.us Rep. Hancock (R) Richland Hills 512-463-0599 kelly.hancock@house.state.tx.us Rep. Nash (R) Arlington 512-463-0562 barbara.nash@house.state.tx.us Rep. Sheets (R) Dallas 512-463-0244 kenneth.sheets@house.state.tx.us Rep. Torres (R) Corpus Christi 512-463-0484 raul.torres@house.state.tx.us Rep. Walle (D) Houston 512-463-0924 armando.walle@house.state.tx.us Rep. Vo (D) Houston 512-463-0568 hubert.vo@house.state.tx.us INTRODUCTION Texas HB 1534 is an attempt to regulate “silent PPO’s” and access to certain discounted arrangements with potentially significant financial consequences should there be a finding by the Commission that discounts were unlawfully taken. More to the point, the bill regulates any entity (including third party administrators and employers) that contract directly with a provider for the delivery of health care services; (see TPAs and benefit plans that contract with providers, TPAs and benefit plans that agree to have a PPO act as their agent and negotiate with providers in the TPA / Plan’s name, and/or PPOs themselves). For TPA’s that contract with a PPO who in turn contracts with the provider not as the TPA’s agent, the PPO would be subject to this proposed bill by virtue of its status as a contracting entity, and not the TPA except for the responsibilities assigned to “third parties;” (see below in regards to Subchapter D). In short, HB 1534 would obligate entities to be bound by certain financial arrangements for the delivery of health care services which they have not negotiated for, nor to which they have agreed. It is important to note that HB 1534 does exempt TPA’s that administer Medicare, Medicaid and the CHIP programs in the state of Texas . The bill further requires each entity to register with the state and to disclose ALL ENTITIES to which the TPA/employer HAS A CONTRACT WITH AND INTENDS TO ENGAGE. This creates significant competitive issues in addition to compliance issues. In short, section 1458.052 requires a TPA/employer to disclose ALL of their contractual arrangements by name and management structure. For this, the TPA/employer has the privilege of paying a “reasonable fee” to the Insurance Commissioner. HB 1534 also sets for the certain contracting requirements and duties of a TPA/employer. Of significance is the duty to notify each provider (there could be hundreds) of the identity of each third party that has or may obtain access to their contractual discounts. In addition, the TPA/employer would have to disclose on their EOB’s what discount is being accessed. On top of this, HB 1534 would impose burdensome requirements to notify each provider in the event the third party terminates its contract with the TPA including significant financial repercussions in the event they fail to do so. HB 1534 imposes a duty to disclose to the provider the applicable coding guidelines and corresponding fee schedules upon TPA’s/employers. If the requested information indicates a reduction in payment, the provider can terminate the contract WITHOUT DISCRIMINATION IN PARTICIPATION IN OTHER HEALTH CARE PRODUCTS. This poses significant competitive issues for TPA/employers that contract directly with certain providers. HB 1534 also imposes significant penalties in the event of non compliance with this bill with arguably no authority to do so. The bill specifically provides that any person who knowingly accesses discounts without the provider’s express consent commits an unfair and deceptive trade practice in the business of INSURANCE. It is unclear how this penalty would be calculated and moreover, it is arguably out of the scope of authority for the commissioner to impose sanctions to TPA’s under the Insurance code. DEFINITIONS “Contracting entity” means a person that enters into a direct contract with a provider for the delivery of health care services in the ordinary course of business. Issue: This definition assumes an entity party to the contract has done so for “the delivery of health care services.” A TPA is usually not contracting for the delivery of health care services, but for access for its plans/groups. One issue which must be kept in mind, however, is the fact that often, a PPO network agreement signed by a TPA or benefit plan will include verbiage which states that the TPA / Plan appoints the PPO as its agent and/or representative. Said provision grants the PPO the power to enter into a contractual arrangement with a provider in the name of the TPA / Plan. In such circumstances, said TPA / Plan would actually conceivably be the contracting entity (per the terms of TX HB 1534) and thereby obligated to all of the terms of this law. As such, it is imperative to recognize PPO agreements that name the PPO as the TPA / Plan’s agent, in contrast to PPO agreements which state that the PPO will function as a contracting entity, independently securing access to a discount on the TPA / Plan’s behalf. “Provider” means a physician, a professional association composed solely of physicians, a single legal entity authorized to practice medicine owned by two or more physicians, a nonprofit health corporation certified by the Texas Medical Board under Chapter 162, Occupations Code, a partnership composed solely of physicians, a physician-hospital organization that acts exclusively as an administrator for a provider to facilitate the provider’s participation in health care contracts, a health care practitioner, or an institutional provider or other person or organization that furnishes health care services that is licensed or otherwise authorized to practice in this state. The term does not include a physician-hospital organization that leases or rents the physician-hospital organization’s network to a third party. Issue: Note that the definition does not include a physician-hospital organization that leases or rents the physician-hospital organization’s network to a third party. “Third party” means a person that contracts with a contracting entity or third party to gain access to a provider network contract. Issue: This definition identifies gaining access to the provider network contract. Third Party Administrators (TPAs) and Benefit Plans are certainly “Third Parties” in accordance with the definition. REGISTRATION REQUIREMENTS Section 1458.051 will require TPAs to register with the department of insurance. Thus, a TPA with one plan (a self-funded ERISA plan) will have to register is the state within 30 days. This seems overly burdensome. Also, those ‘contracting entities’ that hold a certificate of authority issued by the department must file out an application which contains a list of affiliates. The list of affiliates is considered public information. This has the potential to discourage business in Texas as entities may not wish to have their affiliates listed as public record. DISCLOSURE REQUIREMENTS I don’t like the last part of the proposed regulation which provides that the contracting entity will have to disclose: (4) any other information required by the commissioner by rule. This seems to go above and beyond what the department can require, especially as this regulation is intended to apply to third party administrators who are not subject to department of insurance regulations. RIGHTS AND RESPONSIBILITIES OF A CONTRACTING ENTITY This may be a problem in that it requires the third party (employers and TPAs) to abide by “all applicable terms, limitations, and conditions of the provider network contract.” DUTIES OF CONTRACTING ENTITY Under this regulation, the contracting entity (employers and TPAs) has an excessive amount of responsibilities. Further, some of the duties seem beyond the scope of what can be required. Via the contracting entity, this regulation is attempting to impose requirements on each third party. Thus, making the contracting entity responsible and liable for the failure of the third party to perform a certain duty. ACCESS TO THIRD PARTY The regulation provides that the contracting party may not provide a third party access to a provider network unless the third party meets certain requirements – but fails to grant access directly to payers? UNFAIR CLAIM SETTLEMENT PRACTICE With this provision, both a TPA and employer group could potentially be subject to an act typically reserved for companies that administer insurance – not self-funded benefit plans. (“…is subject to sanctions under that subchapter as if the contracting entity were an insurer.”) SUBCHAPTER D Subchapter D (1458.151) binds Third Parties to the same obligations imposed upon Contracting Entities under Subchapters C and E. As such, an initial reading which indicates that these obligations apply only to PPOs (Contracting Entities) must be re-read with Subchapter D in mind. SUBCHAPTER C Subchapter C, Section 1458.101 states that a PPO (if the PPO is the contracting entity) or TPA / Plan (if the PPO functions as the TPA / Plan’s agent) may not secure discounts unless the network contract states that the PPO may assign its rights and responsibilities to the TPA / Plan, and the TPA / Plan must comply with the terms of the contract. This, then, would prohibit network access to Plans which seek to enforce their plan language in lieu of contractual provisions; (see the Temple case – Temple University Children’s Medical Center v. Group Health Inc., et. al., 413 F. Supp. 2d 530, 2006 U.S. Dist. LEXIS 4108, January 25, 2006). (1) Section 1458.104 (Availability of Coding Guidelines) obligates the PPO to provide claims processing guidelines and data which are not available to it. Technically speaking, the information required by this subsection is available only to the plan administrator. It is confusing, therefore, whether the guidelines and fee schedules made available to providers per this provision, refer to guidelines set forth by the network contract, or more appropriately – the plan document. (2) Responsibilities that will apply to the TPA / Plan as a contracting entity if the PPO agreement they execute names the PPO as their agent, or, which apply to the TPA / Plan as a third party in accordance with Sub-Chapter D include: a. notify each provider of the identity of, and contact information for, each third party that has or may obtain access to the provider’s health care services and contractual discounts; b. provide each third party with sufficient information regarding the provider network contract to enable the third party to comply with all relevant terms, limitations, and conditions of the provider network contract; c. require each third party to disclose the identity of the contracting entity and the existence of a provider network contract; d. notify each third party of the termination of the provider network contract not later than the 30th day after the effective date of the contract termination; e. the provider may request a description and copy of the coding guidelines, including any underlying bundling, recoding, or other payment process and fee schedules applicable to specific procedures that the provider will receive under the contract; f. the contracting entity or the contracting entity’s agent will provide the coding guidelines and fee schedules not later than the 30th day after the date the contracting entity receives the request; g. the contracting entity or the contracting entity’s agent will provide notice of changes to the coding guidelines and fee schedules that will result in a change of payment to the provider not later than the 90th day before the date the changes take effect and will not make retroactive revisions to the coding guidelines and fee schedules; h. if the requested information indicates a reduction in payment to the provider from the amounts agreed to on the effective date of the contract, the contract may be terminated by the provider on or before the 30th day after the date the provider receives information without penalty or discrimination in participation in other health care products or plans; i. the contracting entity shall, on request of the provider, provide the name, edition, and model version of the software that the contracting entity uses to determine bundling and unbundling of claims; OVERALL It seems that this bill is not only excessively expansive, but attempts to regulate and obligate TPAs and employers to agreements and relationships of which they may not be privy (and have no knowledge of). TPAs (and their plans) very rarely see the provider agreements with the network, but are required to be bound to them. This further complicates the point of increasing transparency by making the brick wall even stronger. The costs, and inequity inherent in these responsibilities were eloquently addressed by Robyn Jacobson. The issues are three-fold: One is an issue of access. TPAs do not have access to this information, as the Plan Administrator has discretionary authority over these matters. Furthermore, the TPA cannot “force” the Plan to obey any terms or provisions, as it has no authority or power over the Plan. The Plan, and only the Plan, is the fiduciary. If, therefore, the TPA contracts with the PPO to create access for the Plan, its obligations are only to the PPO, and only insofar as it owes consideration to the PPO in exchange for the creation of network access. The actual duties, obligations, and payments owed to the treating providers exist between the plan participant / patient and the provider, and the Plan by virtue of assignment of benefits by the patient to the provider. Another issue relates to knowledge. Neither the TPA nor the Plan can be bound by terms agreed upon by a PPO and provider, as they have no knowledge or input in the development of said terms. Finally, the disclosure requirements are duplicative and costly. The information sought, regarding who has access to what discounts, is already available. The reporting requirements set forth are unnecessary. In short, the bill is attempting to legislate something that the market can more effectively address. Why burden employers and TPA’s with the job of monitoring who is accessing what discounted arrangement? Shouldn’t the provider (since THEY are the ones selling THEIR SERVICES) be in a better position to monitor/manage THEIR OWN contracts? HB 1534 attempts to legislate what the market can accomplish with significantly less financial impact upon TPA’s and employers that contract directly with providers. In short, it is not the job of any TPA or employer to monitor who accesses what discounted arrangement and at what price for a particular provider. More importantly, the legislature exceeds its authority to bind third parties to contracts to which they have no knowledge nor have they negotiated any terms of that contract. Lastly, any sanction that may be imposed upon a TPA or employer should not be addressed under the Texas Insurance Code.

Adam V. Russo, Esq. Chief Executive Officer The Phia Group, LLC 163 Bay State Drive Braintree , MA 02184 phone: 781-535-5678 fax: 781-848-1622